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Hello, everyone. It appears that not much happened while I was away. Perhaps this trip to China will be like some earlier ones---no immediate news. Well, we'll have to see.
Da!
LTCO has it boxed: .09 x .12
Sportfish, I do not think there is anything that Bart Fisher or those who work for him can do to improve the stock price at this moment other than what they are doing currently: working to build the fundamentals of the business.
If you look at the moves down that have occurred recently, they have come on low selling volume. Over the course of the next week or two, watch what happens when buying volume equal to this selling volume occurs. I would venture to guess that we will not move up at the same rate we moved down. The shorts are betting that the company will go out of business, and they're doing all within their powers to facilitate that result.
We'll just have to wait and see who wins -- those building the business or those beating down the stock price.
Triple-witching day today, eh Gary? Ouch!
Thank you, Gary. I posted the info on Raging Bull, which is where al_schwartz asked his question.
Gary, I told al_schwartz I'd post his question over here to see whether you know anything about it:
By: al_schwartz
Reply To: None Tuesday, 18 Sep 2001 at 3:25 PM EDT
Post # of 19194
has the cbq subsidiary NETSERV broken ranks from CBQ inc and formed their own independant company?
Tokyo Stocks Close Higher
By THE ASSOCIATED PRESS
http://www.nytimes.com/aponline/business/AP-Japan-Markets.html
Filed at 6:25 a.m. ET
TOKYO (AP) -- Tokyo stocks closed higher Tuesday, after investors were relieved that Wall Street's losses were within market expectations. The dollar was higher against the yen.
The benchmark 225-issue Nikkei Stock Average gained 175.47 points, or 1.85 percent, to close at 9,679.88. On Monday, the average closed down 504.48 points, or 5.05 percent, to finish at 9,504.41 -- its lowest since Dec, 19, 1983, when the index ended at 9,484.17.
The dollar bought 117.94 yen at 3 p.m. (0600 GMT), up 0.16 yen from late Monday in Tokyo and also above its late New York level of 117.73 yen.
On the stock market, the Nikkei index climbed at the start of trading after overnight European stock markets shrugged off the drop in share prices in New York Monday. It was the first day of trading for stocks on Wall Street since last week's terrorist attacks.
Also buoying markets in Tokyo were expectations that the Japanese central bank will take its cue from U.S. and European financial policy-makers and ease monetary policy after a two-day policy meeting, which ends Wednesday. The U.S. Federal Reserve Board and the European Central Bank cut interest rates overnight by a half point in a coordinated international effort.
U.S. stocks posted big declines in Monday's trading, but the drops were widely expected.
The Dow Jones industrial average suffered a 7.1 percent decline, or 684.81, to 8,920.70 at Monday's close. The NASDAQ composite index fell 115.75, or 6.8 percent, to 1,579.55.
The broader Tokyo Stock Price Index of all issues listed on the first section finished higher, rising 16.64 points, or 1.67 percent, to 1,013.09. The TOPIX closed down 37.36 points, or 3.61 percent, the day before.
In the currencies market, the dollar climbed against the yen amid caution over possible intervention by Japan's central bank.
Japan's Finance Minster Masajuro Shiokawa told a regular news conference Tuesday morning that Japan's finance authorities are ready to take necessary action if the yen moves excessively.
On Monday, the Bank of Japan intervened in the currency market to buy dollars and sell yen to stem the yen's sharp advance.
Japanese financial authorities have been concerned that the yen's recent surge could set back efforts to bail the economy out of a decade-long economic slowdown. A stronger yen makes Japanese exports pricier in overseas markets and thus less competitive, cutting into earnings of exporters -- the engine of growth in Japan.
In other currencies, the euro was traded at 108.74 yen, down from 109.48 yen late Monday in Tokyo.
The yield on the benchmark 10-year Japanese government bond rose to 1.3550 percent from Monday's finish of 1.3400 percent. Its price fell 0.13 point to 100.39
On a Day Without Precedent, Bad Numbers Still Felt Good
By FLOYD NORRIS
http://www.nytimes.com/2001/09/18/business/18PLAC.html
Never before has a day in which the stock market tumbled so far seemed like a good day. But yesterday was a day unlike any other. The losses were smaller than many had expected, and they reflected a surge of buying by ordinary Americans, who were evidently convinced that it was patriotic to be bullish.
That the market did as well as it did was testament that the pleas to Americans to buy stock as a patriotic, antiterrorist gesture had borne fruit. In the morning, it appears there was a wave of such orders, which helped sustain prices.
That buying faded, though, and in the afternoon it appeared that individual investors sold about as many shares as they bought.
The high point of the recovery, whether by coincidence or not, came a few minutes before the first report that President Bush wanted to capture Osama bin Laden, dead or alive. If nothing else, that provided a sobering reminder of the possibility that more rounds of violence may lie ahead.
A big question, of course, is whether the American market can remain relatively strong. That may depend on whether economic worries become stronger than the patriotic impulses to buy.
The Standard & Poor's 500-stock index, the best representative of the substantial companies that make up the economic might of the United States, finished the day down almost 5 percent, at its lowest level in nearly three years.
On any other day, that would be a horrendous performance. But this day was unlike others in so many ways. The American market has done better since the planes struck the World Trade Center than any other major stock market in the world, except Britain's.
The Nasdaq composite and the Dow Jones industrial average did not do as well as the S.& P., for divergent reasons. The Dow has a number of companies that were hard hit by the news, like United Technologies (news/quote) and Boeing (news/quote), which will be hurt by a fall in commercial jet orders, and Disney, which is heavily dependent on tourism. As for the Nasdaq, some of its big technology companies also performed poorly, perhaps reflecting that they still trade at substantial profit multiples that reflect a time when growth seemed limitless. That time was little more than a year ago, but in the current atmosphere its return seems unlikely.
Still, both the Dow and the Nasdaq fell about 7 percent, which is better than all but a few world markets have done since the attack.
One milestone that was reached, which got far less attention than it would have on any other day, was that the Dow became the last major American index to fall more than 20 percent from its peak. That is a traditional indication of a bear market, but by now no one needs statistical proof that a bear is loose in nearly all the financial markets of the world.
Those who hope for a bottom in the market, however, may take hope from the fact that the last two bear markets — in 1987 and 1990 — hit bottom on the very day the Dow first closed more than 20 percent below its peak. And the 1990 low came amid recession and fears of a bloody war, that one against Iraq.
For many on Wall Street, the market's performance was almost a secondary consideration. Simply resuming trading, with some firms using improvised trading systems and with many financial industry employees back in lower Manhattan for the first time since Tuesday, was to be celebrated.
The people doing the trading felt the range of emotions. It was comforting to be back at work, doing what they were used to doing, and away from television sets. But there was also something unsettling about trying to make money at a time when so many friends and colleagues were dead. It was not, could not be, a normal day.
When things do become more normal, when people like H. Carl McCall, the New York State comptroller, are not issuing news releases proclaiming that they are buying stocks, it is possible that share prices will come under more pressure. As it is, a look at world stock markets would make it appear that the United States economy is likely to be among the least affected by this crisis, a thesis that seems unlikely.
American economic statistics that have come out since the attack have gotten little attention, but they have been depressing. There were hopes that the economy had hit bottom, but a new surge in unemployment claims, another fall in industrial production and a drop in consumer confidence — all predating the attack but reported after it — indicated that those hopes were being dashed.
There is a good chance that a recession began well before the World Trade Center was struck, and it is hard to imagine that it will not be deeper now. But perhaps it will be shorter, as the willingness of the government to spend money — without the arguments about a Social Security lockbox — provides a needed economic stimulus.
The Federal Reserve surprised few yesterday morning with an interest rate cut of half a percentage point. But there was some surprise that the European Central Bank quickly followed. Just last Wednesday, Europe's central bank had met and refused to cut rates, with its president, Wim Duisenberg — a man often criticized for saying just the wrong thing — stating that a cut "would have inspired a reaction of panic rather than stability."
This time the central bank, in a wise if excessively dry statement, said that the attack had reduced "the short-term outlook" for European growth, and that a cut was needed. It did not explain why it had been unable to figure out the growth implications of the attack earlier. In any case, European stocks seemed to be helped by the move.
The Canadian and Swiss central banks also cut rates, but there was no move from the Bank of England, though there was speculation it would act in a few days. The British market has fallen the least since the attack, so perhaps the Bank of England has some justification for its reluctance to act. But there had been rumors of a jointly announced move by all major central banks. In a world where international solidarity seems essential, it would have been nice if that rumor had been accurate.
The world's major economies now face a severe burden. For the first time in a quarter-century, it appears likely that the three most important areas — the United States, Japan and Europe — may soon be in recession at the same time.
They will emerge, but to do so quickly will require concentrated and perhaps coordinated action by major governments. It may also require that worry not grow too great that the war being proclaimed in Washington will be a long and bloody one.
China and the WTO
Ready for the competition?
Sep 13th 2001 / BEIJING
From The Economist print edition
http://www.economist.com/world/asia/displayStory.cfm?Story_ID=780479
The marathon negotiations on Chinese membership of the WTO are ending. For the government, the hard part may only now be beginning
IT HAS been 15 years since China first applied to join the multilateral trading system then called the GATT and now known as the World Trade Organisation (WTO). But with the talks at last drawing to a conclusion, the next task for China’s leaders will be to make sure that public opinion remains favourable. Although some of the economic change necessary to prepare China for membership has already taken place, much painful restructuring still remains to be carried out, and with it the risk of growing public resentment.
A WTO working-party in Geneva was this week putting the finishing touches to the document spelling out the terms of China’s accession. At midweek it was unclear whether agreement might be delayed by a dispute involving the EU and the United States over some market-access privileges in China enjoyed by American Insurance Group (AIG). But at any rate China’s admission looks set to be formally approved at the WTO’s ministerial meeting in Qatar in November. This will allow China to gain admission early next year, after China’s legislature has rubber-stamped the protocol. Taiwan will be admitted shortly afterwards.
In the coming few years, China will be obliged by the WTO to cut import tariffs and give foreign businesses much greater access to potentially lucrative markets in such industries as insurance, banking and telecommunications that used to be highly protected. But it is impossible to honour the kind of promises China has made without upsetting a lot of people whose livelihoods will be undermined or whose privileges will be whittled away by the country’s increasing exposure to foreign competition.
China’s leaders had a brief taste of the dangers of a backlash in May 1999 after NATO’s bombing of the Chinese embassy in Belgrade. In the angry crowds that gathered outside western diplomatic missions across China, there were mutterings about the trade concessions made by China’s prime minister, Zhu Rongji, in order to secure WTO membership. In closed meetings, some officials even called him a traitor for allegedly giving away so much to the Americans.
But China’s leaders wanted membership so much that they were prepared to ignore the complaints of the ultra-nationalists and officials at coddled state monopolies. The leaders thought WTO membership would boost flagging exports, force Chinese industries to become more competitive and bring in a surge of foreign investment. In November 1999 China reached an agreement with America containing the very concessions that Mr Zhu had been criticised for offering.
China’s chief negotiator in the WTO talks, Long Yongtu, has tried to reassure the Chinese public by stressing that membership will bring no great benefits or disadvantages. “Anything that is against our country’s interests, we simply won’t do,” he said earlier this year, though he added that China will respect its WTO commitments. But some Chinese scholars think the leadership is taking a gamble.
Last year a book by a young Beijing economist, Han Deqiang, called “Collision: the Globalisation Trap and China’s Real Choice” drew attention to what he argued were the pitfalls of WTO membership. Mr Han believes that many Chinese people are overlooking potential risks because of a “worship of market forces” and the alluring prospect of cheaper imported goods. Mr Han accuses the United States of plotting to use China’s WTO membership as a way of gaining control of China’s economy and speeding up the pace of “westernisation” in China.
Scholars such as Mr Han worry about the possibility of rising unemployment as uncompetitive enterprises are forced to lay off workers and consumers turn to imports. They fear also that what China gains from dismantling bloated government monopolies it will lose by surrendering more of its markets to control by big foreign companies.
The picture will be mixed. In the countryside, the problem of widespread underemployment will be exacerbated as cheaper agricultural imports pour in. Jun Ma, a senior economist at Deutsche Bank, thinks that 1.6m Chinese farmers will be thrown out of work for each of the next five years as a result of entry to the WTO. Hundreds of thousands of jobs in the car industry—at present protected by high tariffs—will be threatened.
At the same time new opportunities will be created in service industries and foreign-financed enterprises. Overall, there could be a net gain in jobs, but WTO membership will not reverse the trend of growing rural and urban unemployment. It is likely to aggravate disparities between regions as areas unencumbered by large numbers of state-owned enterprises make the biggest gains. Tim Condon, chief economist at ING Barings, Asia, says he does not believe that WTO entry will have an appreciable impact on GDP growth, which is likely to remain around 7%.
Next month, when leaders of the Asia-Pacific Economic Co-operation forum meet in Shanghai for an informal summit, China can be confident that it will not experience the kind of anti-globalisation protests that have dogged big gatherings of the kind elsewhere (though huge security precautions are planned anyway). But the danger is that, after China joins the WTO, there will be a growing tendency among ordinary Chinese to blame the organisationfor the suffering caused by restructuring, whether or not WTO-mandated changes are directly responsible.
My brother sent me this personal account of the WTC tragedy that an aquaintance of his wrote:
Dear Friends,
I am taking this opportunity to sit and try and document the events of Tuesday morning and afternoon as I still have a difficult time believing the scenes I witnessed. I am sure my story pales in comparison to the stories which will begin being circulated from survivors who were inside the Towers themselves. The fact that I am able to share my experience while so many never will draws me to the keyboard.
I arrived at the Path station (Path being a commuter railroad operating between NJ and the World Trade Center) at 8:30 am and walked through 2 WTC, the South tower, on my way to work. As I would any other morning, I stopped for coffee and proceeded to my office which is on the 11th floor of 2 Rector St., 2 blocks due south of 2 WTC. New Yorkers had already experienced what we had considered a tragedy the night before. The New York Giants had lost miserably to the Denver Broncos in the first Monday Night Football game of the season. This was the primary topic of conversation over coffee when we heard what sounded like a giant dumpster being dropped outside. The lights flickered. It was 8:45am. Billy Fecci, who sits to my immediate right said, "That was an explosion." People began to run into the room from other parts of the floor wondering what was going on. We looked toward the windows and saw nothing but paper in the air. We ran to the windows and there was only smoke and paper. Someone turned on the TV. We began trying to determine what was on fire. As the smoke began to dissipate a bit we realized it was WTC 1. It was burning. My building is so close to WTC 2 that you cannot see the North tower from my window. The south tower fills the view outside of my window. People began calling friends in the tower. A rumor began that a plane had crashed into the tower. People began speculating about how this could happen. Someone mentioned terrorists. I wasn't willing to believe that yet. I went back to the window and sat on the window sill to see what I could of the fire. About 15 minutes after the first crash, I heard a roar. I stayed at the window and looked to the TV. I saw the second plane hit the South tower and looked out the window in time to see the aircraft disappear into the building and explode. I fell from the window and hit the floor. It was obvious. We were under attack. No one knew quite what to do. The building emergency system was operating and we were told we were not evacuating at this time. We returned to the windows. We began speculating as to the people dead and dying. The emergency system came back on and we were told to evacuate.
I grabbed my bag, packed my things and headed for the stairs. The lobby of the building and the streets were full of people leaving their buildings. I proceeded north, toward the towers on my way uptown or to Brooklyn. I didn't have a plan. I reached the corner of Broadway and Liberty St. If you are not familiar with downtown NYC, that is about a block and a half from the base of WTC 2. I stopped there because there is a park between the towers and Broadway at that point so my view was unimpeded by buildings. The view was awesome. I was mesmerized. I put on my earphones to listen to the radio while I watched the buildings burn. Someone asked me what the news was reporting. I began to tell him about the Pentagon when the sound of twisting metal along with a low rumble filled the air. I looked up. The crashes had been unbelievable. Now came the unthinkable. WTC 2, the South tower, was coming down. No one could move. At 110 stories it seemed so far away. Someone screamed "Get out of here!" It broke the spell. The hundreds of people on that corner turned en masse and began to scream and run. Someone fell in front of me. I fell over him. Glass began to shower down. I thought I would be trampled under all the people behind me. I jumped up and ran. I saw someone go through a revolving door. I jumped in too. As soon as the door closed behind me, an explosion of smoke, debris and people flew past the glass doors. Everything turned gray. People were at locked doors screaming to be let in. I couldn't breath. The gray dust in the air was choking. I pulled my shirt over my mouth to breath through it. I felt something in my shirt. It was a piece of glass 1/2 inch thick about the size of a dinner plate. I was bleeding. I didn't want to inspect my injury too closely just yet. I put my hand over the part of my back where I estimated the injury was. I felt the blood running through my fingers. I found a reception area a bit depressed into a wall where it seemed the air wasn't so thick. I went back there and found someone else hiding. Two more people joined us. One of them told me I was bleeding. I told him I wasn't quite ready to look. He asked me to show him. I did. He told me to take off my belt and to place it over the wound and pull it tight. That was a good idea. So I reached around to feel where the wound was. I found it over my right kidney. I was able to place all four fingers of my right hand into the wound, but luckily, it didn't seem terribly deep. I rolled up my shirt tail and placed the roll over the wound and tightened my belt around it. It was time to start moving again.
I could not determine where I had entered the building or in which direction there might be an exit. I could only see a few feet in front of me. I started to see people walking and I began to follow. I got outside. People were saying, "walk to the water!" I asked, "where is the water?" Then there was a roar from above. We all started to cover our heads and run back inside. Someone stared yelling, "No, those are our planes, those are our planes!" How he was able to recognize the sound of an 4-16 didn't matter. I felt safer. I started following people away from the building. When we reached Water Street the dust began to clear a bit. I was able to see. Everyone headed north toward the Brooklyn Bridge. I knew I needed medical attention.
I did not want to go to an emergency room because I felt as though I was down on the list as far as people needing help. A few stitches and I can be on my way was my attitude. Many people stopped me and asked if I was OK. I assured them all I would be fine. Someone brought me to an officer directing traffic and he asked me to show him my injury. He assured me I would be OK and to keep moving. He said there were no emergency vehicles available but if I felt lightheaded I should get the attention of someone in uniform. So I kept on. I reached Canal Street and there was another incredible rumble. People were screaming, "the second tower is going down!" I ran to an avenue where I could see the Trade Center. It no longer existed. Until that moment, I thought just the top of Tower 2 had fallen off. The scale of the horror began to wash over me. Police were screaming at us to keep moving. Thousands of people stared at the hole in the skyline. As tears began to fall, I walked and prayed.
I continued up what I estimate to be Bowery and a man and a woman asked me if I was OK. I told them I thought so. They asked me if I at least wanted to come upstairs and wash up a bit and maybe clean out my injury. That sounded like a great idea to me. I walked up to the third floor and followed the woman into her bathroom. It was the first time I had seen myself. I am sure by now you have seen photos of people leaving the scene completely covered with gray dust. I was one of those people. I washed my face and tried to wash the blood off of my hands. They both returned with peroxide and gauze. I took off my shirt and finally had a look at my back. It looked like a shrapnel wound. They cleaned out as best as they could. He, I later found out his name was Sam; I never got her name, placed a white towel over the wound and began wrapping duct tape around me to keep pressure on it. Another wonderful use for duct tape. When I got back downstairs a shop owner told me there was a clinic around the corner.
The clinic seemed like a good idea to me because, like I said, I didn't want to get in the way in an emergency room which I could only imagine would be full of horribly injured people. The staff at the clinic was very nice but they were not able to care for me. They informed me I needed sutures and a surgeon to make sure there wasn't any glass left in my back. They directed me to St. Vincent's hospital on W. 12th and Seventh Ave.
The scene at St. Vincent's was incredible. Apparently there had been a call for people to give blood. The first plane crash was at 8:45am. It was now approximately 11:00am and the hundreds of people lined up to give blood was amazing. I walked into the emergency room and was taken in immediately. I was put on a bed and there were doctors working on me within minutes. I was finished in what couldn't have been longer than 30 minutes. I was asked to wait until someone could get my name and whatever information they needed. I began speaking to a fireman. He couldn't have been more than 20 years old. His entire team was walking up to the 80th floor of WTC 1 when the building came down. Another woman began telling of walking down the stairs from the 32nd floor and hearing the screams of those trapped in the elevators. What goes through one's mind when you make the decision to leap from the 80th floor of a building, rather than burn to death?
Besides from the health care professionals and the several people in my room, the hospital was eerily quiet. The truth was, if you weren't able to walk in for somewhat minor injuries, you never got to a hospital. Any emergency vehicles that responded to the initial attack were obliterated when the towers collapsed. Afterward, there was no way to reach anyone because of the rubble in the streets. As has been reported, many of the emergency treatment centers which were set up downtown to treat the injured were closed. There was no need. So many never made it out.
Even though I was there, I still find it hard to believe.
Rescuing the economy
Sep 17th 2001
From The Economist Global Agenda
http://www.economist.com/agenda/displayStory.cfm?Story_ID=786825
Interest rates in America and Europe were cut as Wall Street reopened for the first time since the terrorist attacks. But the market fell sharply. Do the events of September 11th mean America and the rest of the world are heading for recession?
THE WORLD’S monetary authorities took decisive action on September 17th when interest rates were cut in America and Europe. Their aim was to calm the financial markets in the wake of the terrorist attacks on New York and Washington; and to help stabilise the world economy amid fears that a global recession would inevitably follow what President George Bush has described as an act of war.
America’s Federal Reserve announced a half percentage-point cut in interest rates just before Wall Street re-opened for business for the first time since the events of September 11th. The Fed’s move—the eighth cut in rates since the beginning of the year—wasn’t entirely unexpected, and seemed to have little effect on the sharp slide in share prices which started as soon as the market opened. By early afternoon in New York, the Dow Jones Industrial Average had fallen by more than 6%, and the hi-tech Nasdaq had also slumped. But most economists had expected shares to fall, as the White House pointed out. The question is at what point they will stabilise.
In a significant show of solidarity, the European Central Bank (ECB) announced a half-percentage-point cut in rates as well—a move it had decided against when it met only last week. The ECB said it was moving because the recent events in America were likely to have an adverse effect on confidence and therefore growth in the euro area. The Swiss and Canadian central banks announced a similar interest-rate cut.
The interest-rate reductions in America and Europe followed other moves taken by central banks last week to maintain the stability of the international financial system, including large swap arrangements between the Fed and the ECB, and the Fed and the Bank of England. The latest policy steps are clearly intended to reassure traders and investors, and to encourage a speedy return to normality.
But getting back to business will be a slow process. So many institutions have been affected by the damage to offices and communications wrought by the collapse of the World Trade Centre and by the large number of human casualties, that no one knows how the markets will operate over the next few days. Investors are already beginning to reassess corporate prospects in the wake of the terrorist attacks with video-conferencing and defence shares rising, for instance, while those for airlines and insurance companies are declining. Given that share prices overall were falling even before September 11th, it is quite possible they will slide further in the coming days.
The enormous short-term uncertainties are reflected in the wider economy. How will American consumers and businesses react to the catastrophic events? Will people resume flying as before? The airlines are assuming some drop in traffic, and have cut their schedules by around 20%. Will consumers—the backbone of the world’s largest economy—decide against making that trip to the mall? Some stores are already reporting a short-term fall-off in business. How will firms cope if retail therapy goes out of fashion over a longer period? Is recession now inevitable? On the face of it, the economic implications are huge: and how America responds will, in turn, have important consequences for the rest of the world.
But it is important to remember three things. First is the extraordinary degree of uncertainty involved in making economic assessments right now. This makes any attempt at forecasting even more difficult than normal. Second is the importance of distinguishing between short-term responses and the longer-term impact. The immediate fallout seems bound to be negative: for several days, at least, people have not been able to fly even if they wanted to; the emotional reaction to the unfolding tragedy in New York in particular, seems bound to discourage consumer spending. Many economists think the economy will contract in the third quarter of the year.
Last, but perhaps most important, as things stand now the economic impact of the terrorist attacks might be relatively small in the long term. Horst Köhler, the managing director of the International Monetary Fund, said as much in a statement released on September 12th. But that will not stop the events being blamed if America, followed by the rest of the world, slides into recession.
None of this, though, makes the global outlook very cheerful. Indeed, what can easily be forgotten in the aftermath of September 11th is just how bad things were already. World stockmarkets had already slumped in the early days of September. In spite of the assumption made by many economists—and others—that the American economy had just about bottomed out, a stream of disappointing statistics before September 11th was followed by even gloomier ones published after the attacks, but relating to economic activity before them.
On September 14th, government figures showed the eleventh consecutive monthly fall in industrial production in August—the longest decline since 1960. Industrial production has now fallen by 4.8% in the past year; and high-tech output is down 7.2% on a year ago. For most of this year, the American consumer has kept the economy afloat as business activity and investment continued to slide. But there are fears that that may be changing. On September 13th, the widely respected University of Michigan fortnightly survey of consumer sentiment was released a day early. This related to the period up to September 10th and showed a dramatic weakening in confidence. It put a dampener on better-than-expected retail-sales figures issued on September 14th, but covering August. The data suggest that as taxpayers started to get their tax-rebate cheques many of them went out and spent them. As confidence has continued to weaken in September, however, it’s possible more people will now put the money in the bank. Figures due on September 25th will offer the first glimpse of what has happened to consumer confidence after the attacks.
So far, America has avoided recession; a prolonged period of consumer weakness could tip the balance. That would be bad news for a world economy whose prospects already look far gloomier than anyone predicted only a year ago. Output in Japan, the world’s second biggest economy, contracted sharply in the second quarter of the year. The Japanese central bank is now hinting that it might take new measures at the end of its regular meeting on September 18th-19th, but cynics wonder if these will be yet another instance of too little, too late. Other countries in Asia, including Singapore and Taiwan, are already in recession: the collapse in American demand for their high-tech exports has hit them hard.
And the display of hubris from many European leaders at the beginning of the year has been replaced with mounting concern about the prospects for the euro zone. On September 13th, figures showed that the euro area grew by only 0.1% in the second quarter compared with the first; and only by 1.7% compared with a year ago. Germany’s sluggish performance has been especially surprising and disappointing.
Gloomy indeed, with little prospect of an early improvement; and while their long-term impact may be relatively modest the terrorist attacks have done nothing to help the confidence of investors, firms and consumers. But it is possible that the policy responses to the events in America could have some beneficial impact on economic activity. The response of the world’s central banks has been swift and the interest-rate cuts made on September 17th are significant. Given the ECB’s previously much-criticised reluctance to cut interest rates this year, a looser monetary stance in the wake of the terrorist crisis will be welcome.
The euro area still seems determined to stick with its stability and growth pact, derided by many as wrongly imposing tight fiscal policy at a time of economic downturn. But in America, the political row over the disappearing budget surplus has vanished in the wake of the terrorist attacks. President Bush has said America will respond to the attacks: and the prospect of higher military and other government spending, which might ordinarily alarm fiscal conservatives, will inject additional demand into a weakening economy. On September 17th, Mr Bush said he was also prepared to put together an economic stimulus package if that were needed.
For now, though, all economic analysis is necessarily speculative. No one could have predicted the attacks on New York and Washington—let alone their tragic toll in human lives. No one can yet predict with any certainty their economic consequences.
Thanks, Gary!
Wall St. absorbs loss
Dow, Nasdaq declines exceed 5%; airlines, insurers take hits
September 17, 2001: 10:29 a.m. ET
http://cnnfn.cnn.com/2001/09/17/markets/markets_newyork/
NEW YORK (CNNfn) - Major U.S. stock indexes fell more than 5 percent in early Monday trading as investors got their first chance to react last week's deadly terrorist attacks, betting the assault will hurt an already weak economy and corporate profits.
The Dow Jones industrial average tumbled more than 500 points while the Nasdaq composite index declined nearly 100 points.
As Wall Street returned from a four-day trading suspension, the Federal Reserve cut interest rates by half a percentage point, its eighth cut this year. The move came amid reassuring words from influential officials in government and finance, and announcements that companies will buy back their shares.
But those moves did little to reassure investors.
"We've been preparing for this selloff for several days now," said Art Hogan, chief market strategist at Jefferies & Co. told CNN. "We look for stabilization of down around 5 percent."
Money fled airlines and insurers, the two business most affected by the attack's disruption of travel and losses to life and property. But drug stocks edged higher.
At 10:20 a.m. ET, the Dow Jones industrial average fell 602.40 to 9,003.11. The Nasdaq composite index, while down a significant 93.13 to 1,602.17, was off its lows of the session. The Standard & Poor's 500 index shed 52.71 to 1,039.83.
The weakness in the airline stocks sent the Dow transportation average down about 12 percent.
Declines led advances by about a 6-to-1 margin on both major exchanges. Volume was robust, about 404 million shares on the New York Stock Exchange and 474 million shares on the Nasdaq.
Overseas, Asia's stock markets tumbled while Europe's stabilized. Treasury securities fell after rallying last week. The dollar declined against the euro and yen.
Selling as expected
It was an emotional start at the New York Stock Exchange, which observed two minutes of silence before trading began. Members of the New York fire and police departments, along with other emergency personnel, rang the opening bell blocks from the site of the still-smoking former World Trade Center.
Stock investors getting their first chance to react to Tuesday's attack were unnerved, betting the hit to business and consumer confidence will hurt the economy and profits.
The Federal Reserve's eight rate cuts this year took the overnight lending rate between backs to its lowest levels since early 1994. But as they have this year, cheaper borrowing costs have yet to help a market suffering their the worst period for profits in a decade.
Even without Tuesday's attack, investors have reason for wariness. Consumer sentiment tumbled last week as jobless claims surged. Industrial production fell for an 11th straight month in August, a month when the unemployment rate jumped to a four-year high.
Encouraged by the Securities and Exchange Commission, Intel (INTC: down $1.31 to $24.76, Research, Estimates), Starbucks and Sanmina (SANM: down $0.78 to $13.79, Research, Estimates) joined a growing list of companies to say they will buy back their own shares.
The morning losses, if they hold, could send the major indexes below their worst levels of the year. The Dow Jones industrial average began the day less than 300 points above 2001's nadir, while the Nasdaq stood less than 60 points above its low.
The search and rescue efforts continued blocks from the New York Stock Exchange, which has closed last week for the longest stretch since the Great Depression.
Monday's reopen was as much about symbolism, a sign that the attack has not succeeded in cowing Wall Street.
To that end, investors talked about buying stocks as an act of patriotism. "They (the terrorists) have lost," said Richard Grasso, chairman of the New York Stock Exchange, before the market opened.
Warren Buffett, whose Berkshire Hathaway owns the reinsurer General Re, told CBS' "60 Minutes" that he would not sell any of his stocks when the market reopens.
But that didn't stop analysts from lowering their earnings targets. Bank of America and J.P. Morgan both cut their S&P 500 profit outlooks Monday.
Hey, Gary! Hope you're doing well this morning. Can you comment on whether CBQ, Inc. is testing Chinese-manufactured laptops currently? If they are, can you shed any light on what the testing is aimed at? Is it quality assurance? Is it getting to know the machines and how they perform? Is it related to performance standards specified by a prospective customer? Any and all information you can provide would be greatly appreciated, as always. Even one of your famous "No comments" would be welcome.
Buffett, Welch stand firm
Investment guru and corporate icon preach market confidence
September 17, 2001: 5:39 a.m. ET
http://cnnfn.cnn.com/2001/09/17/investing/wires/buffett_re/
WASHINGTON (Reuters) - U.S. billionaire investor Warren Buffett says he will not sell any of his stocks when the market reopens on Monday – and, in fact, if the markets fall significantly he may use it as a buying opportunity.
The New York Stock Exchange is due to open after four days of closure brought about by last Tuesday's air attacks that leveled New York's World Trade Center and heavily damaged the Pentagon building outside Washington, D.C.
"I won't be selling anything," Buffett told the CBS program "60 Minutes." "If prices would fall significantly, there's some things I might buy."
The influential investor said the country is no different economically than a week ago. "And certainly if you owned a piece of an American business that you felt good about a week ago, it would be crazy, in my view, to be selling it at 9:30 tomorrow (Monday) morning," he said.
Jack Welch, the recently retired chairman of General Electric Co., also said he would be holding onto his stocks on Monday.
"I'll probably just hold," he said. "My view is that this is the best place in the world to invest. We have the strongest economy."
Buffett pointed out that the economy was already in a slowdown before last week's events.
"There was a slowdown going on last week, and there'll be a slowdown going on next week," he said but added that the attacks are likely to have "some impact" on third-quarter earnings.
The U.S. economy barely grew in the second quarter, with GDP managing a tiny 0.2 percent gain.
Another guest on the show, former Treasury Secretary Robert Rubin and now Citigroup board member, was also upbeat on the fundamentals on the economy.
"I think the right message...is to keep your eyes on the long term strength of our economy and our society, and react calmly and sensibly, and thoughtfully, just as you always would," he said.
President Bush and Treasury Secretary Paul O'Neill have both insisted that economic prospects are still good despite the tragic events of last week.
However, earlier Sunday, Vice President Dick Cheney said the economy could "quite possibly" tip into a recession.
Asked in an interview on NBC's "Meet the Press" if the United States was now in both a war and a recession, Cheney said: "Quite possibly. We clearly have a war against terrorism and we don't know yet what the third quarter is going to be like" in the economy.
Insurance payouts
Buffett also said his company, Berkshire Hathaway Inc. , which owns General Re, a reinsurer set to take a share of insurance losses arising from the destruction of the World Trade Center, is well-equipped to pay out a great deal of money.
"We will pay out, at Berkshire, a great deal of money, more money than we've ever paid out -- in respect to any catastrophe -- before this. But we're well equipped to take it," he said.
Buffett said there is no doubt that some insurers will be hit badly by the crashes which may result in the failure of some companies.
Another sector that has been hit hard is the airline industry, and Welch said the government would likely have to step in to bail it out.
"I mean there's just no question that industry has been impacted uniquely," he said.
The House of Representatives failed last week to adopt a measure that would have offered $12.5 billion in loan guarantees to the airline industry and another $2.5 billion in direct aid, but lawmakers are expected to try again to move legislation to help the already ailing industry in the coming days.
However, Buffett was not so enthusiastic about such a proposal.
"There have been a lot of airlines that have gone bankrupt without having the sort of events you've had in the last week," he said. "So we have to be very careful about any mass subsidization."
Fed cuts rates again
Central bank lowers rates by half percentage point to bolster confidence
http://cnnfn.cnn.com/2001/09/17/economy/fed/
September 17, 2001: 9:46 a.m. ET
NEW YORK (CNNfn) - The Federal Reserve cut interest rates half a percentage point Monday to bolster the economy and U.S. markets after the worst terrorist attacks ever against the United States.
The cuts, the eighth by the Fed this year, came six days after the attacks that destroyed the World Trade Center in New York and damaged the Pentagon last Tuesday. They were widely expected as the central bank seeks to keep funds flowing through the economy -- and boost consumer confidence -- after the attacks.
The central bank cut its target for short-term rates to 3.0 percent from 3.5 percent, the lowest level since September 1992, in a bid to make money more accessible to consumers and help avoid a recession. The Fed also cut the seldom-used discount rate to 2.5 percent from 3.0 percent.
"The Federal Reserve will continue to supply unusually large volumes of liquidity to the financial markets, as needed, until more normal market functioning is restored," the Fed said in a statement.
The action came after an emergency conference call among Fed policy-makers at 7:30 a.m. ET, according to a report by the Associated Press.
"It's pretty much expected due to the extraordinary situation," said Sadakichi Robbins, head of global fixed income trading at Bank Julius Baer. "Their biggest concern is making sure there's ample liquidity, especially as the equity markets open. The bond market had been expecting it."
In the Treasury bond market, where prices soared and yields fell last week as investors bet on the widely expected cut, prices fell modestly Monday.
U.S. stocks began trading again Monday after being closed for four days, their longest break since the Great Depression. Stocks were weak in the first minutes of trading, and some economists say market volatility could add to consumers' woes and hurt spending, which fuels two-thirds of the U.S. economy.
"It's probably wise they [cut] before the opening bell," said Lara Rhame, U.S. foreign exchange economist at Brown Brothers Harriman. "They wouldn't want to [be seen as] reacting to the stock market, but they are trying to show that they are willing to do what it takes to maintain confidence."
It's even possible that the Fed could cut rates again Monday morning if U.S. stocks are too volatile when they open.
The economy already was on shaky footing, with slow business spending, a manufacturing sector in a year-long recession and consumer confidence beginning to sag after hundreds of thousands of job cuts.
But economists also expect that the Fed's actions, combined with expected economic stimulus from the U.S. government, should be enough to shake off the initial stock-market jitters and help keep the economy on course.
"I remain more confident that the consumer will take great comfort in knowing that our government is truly taking care of business," said Anthony Chan, chief economist with Banc One Investment Advisors.
Though the Fed said it thought the risks to the economy were still weighted mainly toward weakness, it also said it thinks the U.S. economy still has a solid foundation for the long run.
"The long-term prospects for productivity growth and the economy remain favorable and should become evident once the unusual forces restraining demand abate," the Fed said.
U.S. stocks could fall on market open
Dollar around March lows; Nikkei jumps on bank news
By Martin Cej, CBS.MarketWatch.com
Last Update: 4:27 PM ET Sept. 14, 2001
http://cbs.marketwatch.com/news/story.asp?column=Market+Snapshot&siteid=mktw
NEW YORK (CBS.MW) -- The U.S. stock market, the world's largest, will open for business Monday -- after the longest closure since the Great Depression -- according to New York Stock Exchange Chairman Richard Grasso.
Stocks are likely to fall when financial markets resume trading, analysts and investors said, yet losses are expected to be short-lived, as investors at home and abroad express their confidence that U.S. financial markets remain the safest in the world.
Investors will also have to weigh renewed weakness in the U.S. dollar Friday, as well as extended declines by overseas markets. Bonds rallied, however, as buyers continued to pile into the perceived haven of U.S. government-backed securities. Initial public offerings slated for next week have also been pushed back, according to Dealogic CommScan, which tracks the market for IPOs for banking and brokerage clients. Read more on the IPO market.
"We have stumbling blocks out there, like bad third-quarter profits on the way and the fact that the U.S. economic recovery may be pushed out to a later date," said William Barker, an investment strategist at Dain Rauscher Wessels. "But it's a good move to wait until Monday. The American people will have the weekend to look at the fundamentals, so there won't be a massive selling wave."
"People will recognize that this is not a reason to dump stocks," Barker said. "I expect a down market, but not aggressively so."
In overseas trading Friday, European stock markets extended the losses as earlier resilience in the aftermath of U.S. attacks gave way to uncertainty over the political and economic future. See full story.
Earlier, Tokyo's Nikkei index soared above the 10,000 mark. Canadian stocks tumbled in thin trading as investors tried to assess the impact of the attack on the U.S. economy.
The dollar slumped against the yen, falling to levels not seen in six months. The dollar fell to 117.34 yen, below Tuesday's lowest levels following the terrorist attacks of about 118.55. The dollar fell to a six-month low versus the euro, with one euro worth 92.12 U.S. cents in recent trading.
U.S. Treasurys rallied for a second day Friday, pushing yields on short-term debt to fresh lows not seen since the 1950s on expectations the terrorist attacks will prompt more interest-rate cuts.
Most of the buying in Treasurys was centered in the short-maturity end of the yield curve, which tends to be highly liquid and an easy short-term investment vehicle. See full story.
"First we'll see excessive volatility [in the stock market] with a trend toward weakness, then a modest rally," said David Sowerby, chief market strategist and portfolio manager at Loomis Sayles & Co., which oversees about $65 billion in assets. "In the third stage, which is the stage that will prevail, you'll see a more positive direction in the market."
Sowerby said that assurances from the Federal Reserve and other central banks that sufficient liquidity is available to maintain the integrity of the monetary system, as well as the likelihood for lower interest rates, will underpin a recovery in the stock market.
"In the early days of trading we'll be trying to make sense of it all, but three to six months out, I'm confident that fiscal and monetary stimulus will have the market higher," Sowerby said. "Nobody has called me with any desire to take money out of the market, but people have asked me to put money in."
Some investors will likely use any declines in the stock market as an opportunity to add to positions, secure in the belief that the terrorist attacks on the U.S. may slow the recovery of the U.S. economy, but not prevent it.
"We are buckling down for some volatility, but there's a reasonable probability that there will be a rallying of the American spirit," said Jeff Brown, a principal at Highstreet Asset Management in London, Ontario. Brown manages the firm's U.S. portfolios.
"We will not join the panic if there is one, nor will we contribute to starting one," Brown said. "The best thing we can do for our clients is keep with our long-term investment plans."
'Safety valves'
Brown said that he could not imagine betting against a U.S. economic recovery, and added that other investors' concerns will be assuaged by the concerted efforts of the Fed and other central banks to ensure the global financial system won't seize up. See full story.
"If you wanted safety valves, we're hearing everything we need to," he said.
The greatest concern of stock investors is not the likely knee-jerk slide by U.S. stocks at the open, rather it's what to buy at a time when the U.S. economic slowdown has been exacerbated by the attack on the American financial center and rising oil prices.
"While some pause in consumer spending and business investment is likely, the efforts of all levels of governments to return to normality and response of people and officials in New York and Washington strongly suggest that economic effects will be of limited duration and scope," said David Blitzer, managing director and chief investment strategist and Standard & Poor's.
Active issues
Among the stocks likely to be active in early U.S. trading are the insurance firms. The World Trade Center's two towers plus two other buildings on site were valued at $3.2 billion this year and the complex could cost an estimated $2.5 billion to $3 billion to construct today, excluding the cost of the land.
U.S. property-casualty insurer Chubb (CB: news, chart, profile) said it has "significant property exposure" in the World Trade Center and estimated its pre-tax loss at $100 million to $200 million, subject to revision as more facts become known.
Perception vs. reality
Jeff Saut, chief investment strategist at Raymond James & Associates, said he would be advising clients to buy selectively on weakness, even in the insurance sector.
"The difference between perception and reality is where opportunities lie," Saut said. "If we see Allstate (ALL: news, chart, profile) falling with the rest, we'll advise to buy."
Saut said Allstate is not as exposed to claims stemming from the New York attack as many other firms, but it may be dragged lower with the group.
Oil stocks, gold miners and defense issues are likely to gain as rising oil and bullion prices hoist producers, and the likelihood of a military strike could mean increased sales for makers of armaments, jets, weapons and propulsion systems.
Conversely, airline stocks including AMR Corp. (AMR: news, chart, profile) and UAL (UAL: news, chart, profile) are likely to fall. "I suspect that gold stocks will tend to do well, and domestic oils. Insurance stocks could be under some pressure, or anyone significantly tied to Manhattan," said James Oberweis of Oberweis Securities. "I would expect airline stocks to have severe pressure, too. Air travel may see some long-lasting changes."
Saut, however, is not among those expecting a quick plunge, then a sustained recovery. He anticipates the opposite.
"The market will be propped up temporarily, but we're in a primary downtrend," Saut said. "There is no precedent for this, and if there was ever any doubt that we were heading into a recession, that was thrown out the window," Tuesday.
Martin Cej is global markets editor for CBS.MarketWatch.com in San Francisco.
US Stock Outlook: Industry Comes Together To Stop Selloff
Updated: Friday, September 14, 2001 02:42 PM ET
http://www.quicken.com/investments/news_center/article/printer.dcg?story=/news/stories/dj/20010914/o...
By Karen Talley and Donna Fuscaldo
Of DOW JONES NEWSWIRES
NEW YORK -(Dow Jones)- A grassroots effort is growing among traders, investment strategists and money managers to prevent the stock market from selling off when it reopens on Monday.
The effort is informal, consisting largely of phone calls and e-mails between colleagues and postings in professional chat rooms. It could add up to something significant if the spirit is carried through, say those involved.
"This is about not taking advantage of a disaster," said Jim Dunigan, chief investment officer at PNC Advisors. "The goal is stability for the market."
Indeed, the big fear is that the uncertainty caused by Tuesday's attack on the World Trade Center will cause massive selling once the U.S. stock market reopens. Right now regulators are aiming for the opening to occur on Monday.
Dunigan said he has been talking with colleagues at other investment firms about holding back on measures like program trading, "so as not to upset the market's fragility at this time."
Program trading, a tool used by arbitrageurs and institutional traders, can cause massive moves in stock prices through computer-driven buying or selling of baskets of stocks.
"Program" refers to the computerized monitoring that occurs to detect and then take advantage of hiccups in the market ahead of other investors.
The practice has been cited for causing excessive volatility and contributing to the 1987 stock market crash. While restrictions have been put in place since then, the approach can still have a great impact on the market's direction, analysts say.
Short selling is another practice that can measurably move stocks lower, as traders take positions in anticipation that stocks will fall. That practice is being frowned upon by some right now.
Pacific Equity is a big short seller, but is dispensing with the practice until the market settles down, said the firm's principal, Anthony Elgindy.
"I'm sure I could make a lot of money if the world panicked," Elgindy said. "But I'm not convinced that's a business philosophy I want to employ."
Traders are also urging their colleagues not to short stocks and also cover short positions on Monday. This has been a focus of discussion in the chat room of the Market Technicians Association, a group that counts traders and investment strategists among its members.
"When the New York Stock Exchange opens, we and our clients will not execute any sell programs, nor sell short any stocks trading on any market worldwide," one posting said. "You have our permission to pass this information along to others."
Some money managers say they plan to buy stocks or at least hold on to their positions when the markets opens.
Take Alex Motola, portfolio manager at Thornburg Management, in Santa Fe., N.M. Although Motola said he may do a little bit of selling on the margin, he plans to be a net buyer.
"A lot of American people are going to step up and lead a market intervention," Motola said. "People feel the right thing to do is to buy stock, support the economy and be defiant in the face of terrorism."
Marty Shagrin, technology research analyst at Cleveland-based Victory Capital Management, expects investors as well as corporations to support the markets. He added that his firm doesn't have any sell recommendations coming in for Monday's open.
But others are noncommittal. Chris Kaufman, a managing director and portfolio manager for the BlackRock Funds, says he wants to get a sense of how the market moves initially before acting. "We'll look and see what prices might be advantageous to us as a buyer or seller," Kaufman said.
Indeed, there are some considerations that may weigh on a showing of solidarity, even the patriotism of buying stocks. Stephen Poser, a member of the Market Technician's Association and president of his own investment advisory firm, is with the move in spirit but questions whether it is doable.
"First of all, not everyone in the U.S. stock market is an American and money managers have a fiduciary responsibility to do what they can make money for their clients or protect them from losing it," Poser said.
But if corporations get behind the effort stocks could move up. Cisco Systems is stepping up to the plate, saying on Thursday that its board authorized a stock buyback program of as much as $3 billion, in an apparent symbolic move.
Cisco Chief Executive John Chambers said the company has "tremendous confidence in the financial systems of our country, in our industry and in our market-leading position."
And individual investors say they want to do their part. In chat rooms across the Internet they spoke of their commitment.
One poster on MSN's MoneyCentral message board said "many average Americans are asking what they can do to help. When the stock market opens on Monday, they should invest in our Country."
The posting added that "by investing in America, we can show the world that though the World Trade Centers were destroyed, the beacon of world trade is not. Stand up in the face of adversity by buying a piece of the greatest nation the world has ever known."
On one of Yahoo's message boards another poster said "as the markets open the world will be watching to see if the US economy is going to fold like the legs on an old card table or whether America is made of sterner stuff. Here's what I'm doing. I have buy orders on five stocks, although they are not big orders. I will not sell anything. If these stocks lose money so be it. I really don't care."
The thing is, stocks might have lost money even without Tuesday's attack. The economy is wobbly and that was reflected by the Standard & Poor's 500 Index and the New York Stock Exchange Composite Index closing at three year lows the week before the attack.
But some see the tragedy providing fiscal and monetary stimulus in the form of interest rate cuts, military spending and reconstruction spending.
Indeed, it may well be in investors' best interest to be bullish come Monday.
"History has shown each prior event-driven selloff to ultimately be a buying opportunity," said Jordan Kimmel, president of Magnet Investment Group.
Picking up the pieces
(Editor’s Note: Stephen Roach, a Morgan Stanley analyst who was in Milan on assignment, wrote the following. It represents his personal opinions and reflections following the tragedy at the World Trade Center on Tuesday, Sept. 11.)
http://www.chinaonline.com/topstories/010914/1/C01091451.asp
How can anyone make sense of tragedy? I know I can’t. The events of September 11 are truly unfathomable. The sheer pain of human suffering almost trivializes the business tasks we now face. Yet healing only comes by returning to what we know best. So bear with me as I ponder the macro on this morning after, attempting to discern some tentative conclusions that bear on the economic underpinnings of financial markets. I stress the word "tentative" because I may be missing something or simply getting it wrong. But in the spirit of the probing and searching that has always driven our macro effort at Morgan Stanley, I think it’s worth a try.
Impact analysis of any shock -- even one as devastating as this – is always dependent on context. A negative shock can turn a booming economy into a soft one, whereas it can tip a stagnant economy into recession. It’s the latter context we start with, of course – our below-consensus prognosis for the US and global economy. Against that backdrop, I offer three broad insights into how the tragedy of may affect the economic underpinnings of world financial markets.
First, a cyclical point: The terrorist attacks represent a severe negative shock to US consumer confidence. The vulnerability of the American consumer has been the missing link in the down leg of this business cycle so far. That’s no longer the case. As far as I am concerned, this shock seals the fate of the American consumer. The consumer was already beginning to labor under the pressures of depleted saving, record debt burdens, negative wealth effects, and rising unemployment. The August surge in joblessness was a particularly worrisome sign in this regard. Moreover, the downside of flexible compensation -- performance bonuses, profit sharing, and stock options-- was also looming. And now a devastating shock hits. In my opinion, this shock, in conjunction with a very ominous set of fundamentals, is a lethal combination for the American consumer. Any residue of consumer support to the US and global economy -- both for discretionary spending as well as for housing-related activities – is likely to be a clear victim of the staggering events of Sept. 11.
Second, more of a secular point: My fear is that the world might turn inward in response to this tragedy. In my opinion, the lasting impacts of this shock could well challenge many of the underpinnings of globalization -- rapidly expanding trade flows, surging global financial capital flows, increasingly globalized supply chains, and the rapid expansion of trans-national flows of multinational corporations.
I am worried that the world, in general, and America, in particular, could well lose its appetite for cross-border connectedness. I hope I’m wrong on this point, because such a road could be a most treacherous one for the world -- painfully reminiscent of the events of the early 1930s.
But openness requires confidence in cross-border relationships. And I worry that the private sector’s taste and appetite for global connectivity -- businesses and individuals, alike -- may have been dealt a severe blow that could give rise to a backlash against globalization.
Globalization may have worked brilliantly from an economic and financial point of view, but the social and political consequences have not gone well at all. The voices of the anti-globalists, which have grown steadily louder over the past two years, now seem almost deafening.
Third, is a ray of hope -- shocks always subside. That offers a reason to look beyond what could be an even deeper valley than we originally envisioned. The sigh of relief that inevitably must follow, hints at the possibility of both a sooner and a sharper upside to the U-shaped recovery in the US and global economy. The risk, however, is that such bounce will be either muted or short-lived. Consumers and businesses, alike, need the wherewithal to step up and spend. Income short, saving-short, debt-burdened, and wealth-depleted American consumers will still be lacking that wherewithal once the impacts of this shock subside. The shaky fundamentals of a post-bubble US economy have not suddenly vanished into thin air. I certainly can’t rule out a more cyclical response as healing occurs, but my best guess at this juncture is that any post-shock relief will not be enough to transform an anemic recovery into a classic V-shaped outcome.
It’s tempting to model the current set of circumstances after those that prevailed a decade ago -- before, during, and after the Gulf War. That shock, of course, toppled an already weakening US economy into brief recession. However, I would resist the temptation to draw too much from these apparent similarities.
For Americans, the Gulf War was an external shock half way around the world. The tragedy of Sept. 11 is an internal shock that shatters a sense of security at home. The aftershocks of this latest event are likely to be far more serious and lasting, in my view.
What are the tentative conclusions that can be taken from all this? Insofar as the world is concerned, this tragedy deepens my conviction regarding our synchronous global recession call for 2001. Our baseline scenario currently calls for world GDP growth of just 2.1% in 2001. In light of the shock, I would lower my downside risk assessment to this estimate from 2.0% to 1.5%. A world that moves to the lower end of this range would put this global recession on a par with the deep worldwide downturns of 1975 and 1982. As for 2002, I wouldn’t rule out a temporary rebound in the early months of the year, but I feel that any such bounce would be limited and short-lived. The persistence of negative fundamentals in an engineless global economy continues to point to a U-shaped world, in my view. Our baseline scenario currently calls for 3.4% world GDP growth in 2002, and I would maintain my view that the risks remain skewed to the downside -- possibly to 3.0%, or even lower.
Insofar as the US economy is concerned, I suspect that the negative shock to consumer confidence could well be the transforming event of this business cycle. It changes the cyclical dynamic in the US economy from being investment-led to consumer-led. As such, it takes the fundamentals of an already weakened US economy from bad to worse. We have been out on a limb all year with our US recession call. Before the shock of Sept. 11, America had moved to the very brink of that outcome. This tragedy could well be the tipping point to the recession of 2001.
As for policy and the financial markets, I would hazard the following guesses: The Federal Reserve seems likely to be more predisposed toward monetary accommodation than would otherwise have been the case. The US central bank was attempting to signal that it was nearing the end of its easing cycle. I suspect it will no longer want to qualify that message. In a period of crisis, it takes its role as a liquidity provider most seriously.
Fiscal policy should turn more expansionary, as spending is stepped up on defense and on internal security. Layer that on top of the lower revenue base of a weakened economy, and the budget deficit could suddenly make a comeback in the eyes of the financial markets.
Initially, I would look for global investors to seek safety in dollar-denominated assets. That would put a bid on Treasuries across the maturity spectrum, and also provide support to the dollar. As the initial shock subsides, however, the safe-haven allure of long-dated assets should fade. That, in conjunction with newfound budget deficit fears, could lead to relative under-performance of longer-term fixed income instruments -- the stuff of a steepening yield curve.
Let me end by underscoring the note I began on -- these are tentative thoughts, at best. Like the rest of you, I, too, am in a state of shock. I send this dispatch from a hotel room in Milan, where I have been ensconced for the past 24 hours, trying to distill any sense of
meaning out of all of this. A long-scheduled European road show had temporarily been put on hold. My first inclination was to crawl into a shell, stare at CNN, say nothing, and go nowhere. But the human soul needs more. We find solace in community -- in collective engagement. We need to talk to our families, our friends, our colleagues, and our clients. And so it is in that spirit that we now attempt to pick up the pieces and discern what lies ahead in the macro realm.
The world is a resilient place. And America stands for a special resilience and resolve that has shaped its destiny for 225 years. I have no doubt that the United States will weather this storm and come out the other side with an even greater sense of renewal and determination. That doesn’t mean it will be easy. Yet as day follows night, healing follows pain. And recovery will also follow recession. This time is no different. Sadly, it’s just a lot more painful.
China's Silicon Valley gets huge boost
http://www.chinaonline.com/topstories/010914/1/C01091302.asp
(14 September 2001) One of China’s largest specialized electronic product processing facilities was opened Sept. 12 on 3,000 square meters of land with an annual processing capacity of five million pieces.
It was built at the Shangdi Information Industrial Base, according to a Sept. 13 Sina.com report.
It is the largest specialized processing base of electronic products in the Zhongguancun area with what is described as three of the most advanced processing lines in the world, all designed to provide one-stop services to the customers from design to delivery.
Zhongguancun is the largest research, development and manufacturing center of electronic information products in China. The establishment of the processing base of electronic products will not only satisfy the demand of the enterprises in Zhongguancun Area, but also supply its products to the whole country and eventually becoming the largest specialized processing base of electronic products in China with networked services, according to the Sina.com report.
The core of the processing sector of high-tech electronic products in the world is gradually shifting from Europe and North America to Asia, especially to the Southeast Asia. In China, most of the specialized processing enterprises of electronic products are still concentrated in the coastal areas in South China and the processing capacity of electronic products in northern China and the surrounding areas is still insufficient.
Wastler: China's choice
Cozying up to the Taliban could be costly to the world's most populous nation
September 14, 2001: 4:21 p.m. ET
http://cnnfn.cnn.com/2001/09/14/news/column_wastler/
Allen Wastler is managing editor and roving columnist for CNNfn.com.
NEW YORK (CNNfn) - A friend of mine with a lot of money asked me to pass this letter along:
Dear President Jiang Zemin,
Payback time is coming. It looks like it may be Afghanistan. I know that you two have been cozying up lately, and I wanted to give you a heads-up and ask you to please, please not get involved. It could cost me, and your countrymen, a lot of money.
You know what the situation is. Last week's despicable and sickening act of terrorism is pointing more and more at Osama bin Laden. He hangs out in Afghanistan with the blessing of the Taliban, the zealot thug government that runs the place. President Bush has made it pretty clear: Those responsible, and those who harbor those responsible, are going to get it. Hard.
Feeling the heat, Afghanistan is looking for friends. Big ones. Nuclear powered ones. It's only real hope is China. Russia really isn't a possibility, is it? Pakistan? Yes, but with India at the door that regime has all it can handle.
It makes sense to expect your help, from the Taliban's point of view. You do, after all, consort with all their element: Syria, Iraq, Iran, North Korea, Cuba, Libya, Sudan. And China has been reported to be building economic ties to the Taliban. And the United States, from an ideological perspective, is your opposite.
That worries me. Sure, sure, you pledged to support the war on terrorism. But what you say and what gets done often aren't the same thing. Should I even start with the Spy Plane episode?
Naturally there will be plenty of world pressure for China to play along. But check out this quote from a Western diplomat on Reuters: "I'm not sure it's going to have much effect. China is going to continue to do what it believes to be in its best national interests."
OK, let's think about those interests. China's always been a big fish in the world trade pool: $474.3 billion in global trade in 2000 alone. That figure is likely to grow significantly once you sew up the World Trade Organization thing. And then there's the 2008 Olympics – more economic gains plus some image enhancement as well.
And then there is specifically us. We bought more than $100 billion worth of stuff from you in 2000, over 15 percent of your total trade. We're your No. 2 trading partner, after Japan.
And we'd like to be your No. 1. Boeing, for instance, is really anxious to sell you some planes. Over the next 20 years China is expected to buy up to 1,600 aircraft. I'd really like to see the blue chip outfit get it.
Then there's direct investment by U.S. companies, my companies, in China. More than 16 percent of the foreign direct investment in China comes from North America. "For companies that actually have invested in facilities and manufacture goods in China, a souring of relations poses a real risk," said a spokesman for the U.S. China Business Council.
One way or another, payback is going to happen. And the United States is likely to have a lot of help from the rest of the world. If you stick with your brutish, extremist friends, China stands to become a pariah, Olympics notwithstanding. And then all the money we hoped to make with one another will be lost.
So please. For both our sakes, dump Afghanistan.
Will stocks drop Monday?
Whether it's selloff or stability, market's resumption laden with a message
By Staff Writer Jake Ulick
September 16, 2001: 7:00 a.m. ET
http://cnnfn.cnn.com/2001/09/16/markets/sun_lookahead/
NEW YORK (CNNfn) - When stock trading resumes Monday, some expect a plunge. Others forecast a rebound. But whatever happens, the end of the longest trading suspension since the Great Depression is heavy in symbolism, heavy with signs that financial markets were shaken but not broken.
Wall Street professionals, many still grieving the deaths of friends, family and colleagues involved in the World Trade Center attacks, must turn their attention back to matching buyers and sellers of stocks.
"Time to dig in and start to go," said Hugh Johnson, chief investment officer at First Albany.
Johnson said he won't focus on the open, when he expects a selloff. Instead, he'll watch whether investors buy stocks once they tumble in a bet that the deadly terrorist attack won't significantly threaten the economy and corporate profits.
"Just as the bond market and Europe has priced in what this tragedy means ... so too will the stock market," said Johnson. "The real question is what happens at 10:30 (a.m. ET)."
The institutional clients that First Albany manages money for have signaled they will come in because they see value in the market, Johnson said.
Still, plenty of fear surfaced last week. On Friday, European stocks fell, the dollar tumbled and oil soared. Money flooded into Treasury securities, the safest of securities, sending yields tumbling.
That action seemed to underscore worries about the attack's effect on the U.S economy. In one scenario, consumers and business executives, already cautious amid a slowing growth, postpone spending and travel, further hurting an already stagnant economy.
Last month's economic numbers, reflecting pre-attack conditions, did not look good. The nation's unemployment rate jumped to a four-year high of 4.9 percent, industrial production fell 0.8 percent, and the number of new claims for unemployment benefits jumped to 431,000 in the first week of September from a revised 410,000 the prior week.
Stocks were already suffering amid the worst year for profits in a decade. And Mickey Levy, chief economist at Banc of America Securities, said he expects further stock declines Monday, reflecting "the increased risk that is now perceived to surround future profit streams."
For bulls, the attack has raised expectations that the Federal Reserve will soon lower rates aggressively before their regular meeting, following seven rate cuts this year. Some see that cut coming before markets open Monday.
"As we work toward a reopening of the equity markets, we believe that a cut in rates is even more important than it was before," Bear Stearns economists Wayne Angell and John Ryding said in a note to clients.
Overseas, central bankers have agreed to pump money into their economies to keep buying and selling from seizing up.
On the corporate side, Cisco Systems (CSCO: Research, Estimates) last week said its board authorized a stock repurchase program of up to $3 billion over the next two years, a sign that companies with depressed stock prices see value in their shares.
Optimists see in the attack a catalyst for recovery. And some sectors are expected to do well this week. They include energy, defense, health care, construction and consumer stable stocks. But money may flee insurers, airlines and hotels
Profit reports
A handful of companies, running the gamut of industries, report results for their August quarter. But the numbers take on less significance because they don't include information on the post-attack period that may prove crucial to where the market is heading.
The attack on the nation's financial capital focused attention on brokerages, two of which report results in the days ahead.
Profit at Morgan Stanley (MWD: Research, Estimates), one of the largest tenants in the World Trade Center, is expected to fall to 65 cents a share from $1.09 a share.
Bear Stearns (BSC: Research, Estimates) is expected to see its profit fall to 90 cents per share from $1.32 a share in the year-ago period.
The brokerage business has faced a slowdown in trading, underwriting and mergers and acquisitions fees. But the technology business is suffering from worse slump.
Consider 3Com (COMS: Research, Estimates), a maker of networking products. When the company posts results this week, analysts expected losses of 35 cents a share, much wider than the 12-cents-per-share loss in the year-ago period.
Profits at General Mills (GIS: Research, Estimates) are expect to rise to 59 cents a share, according to the Wall Street consensus estimate, from 55 cents in the year-ago period.
Food stocks like General Mills have held up well this year as money moves into stable stocks whose profits tend to hold up amid an economic slowdown.
Economic data also reflect the pre-attack period. Monday brings the July trade balance data. According to economists surveyed by Briefing.com, the deficit is expected to widen to $29.8 billion in from $29.4 billion in June.
The August Consumer Price Index comes Tuesday. Once again, inflation is expected to be contained, with a 0.2 percent rise forecast following July's 0.3 percent drop.
On Thursday, housing starts in August are expected to fall to an annual rate of 1.63 million from 1.67 million the previous month.
Whatever happens to stocks this week, they are starting from already depressed levels. Last Monday, the Standard & Poor's 500 index closed down more than 17.2 percent on the year, while the Nasdaq is 31 percent lower in 2001. Blue chips have held up a little better. The Dow industrials are off 11 percent this year.
But there's one emotional wild card that may come in to play that has nothing to do with profits. Call it the patriotism effect.
"If the markets retreat, the terrorists have won," Joanne Rosen, a reader, wrote in an e-mail to CNNfn. "If the stock market surges, we will prove that we have not lost confidence in ourselves and in our future."
Stocks could get hit
Airlines, insurers likely to sell off in short term, but defense issues may zoom
By Staff Writer Parija Bhatnagar
September 15, 2001: 9:20 a.m. ET
http://cnnfn.cnn.com/2001/09/15/markets/hotstox/
NEW YORK (CNNfn) - Rescue and cleanup work continued Saturday as the United States continued efforts to recover from the worst terrorist attack in history. Meanwhile the market outlook dimmed following attack-related earnings warnings from several high-profile companies and building cash-flow pressure on airlines and insurers.
"In terms of macro sector trends and macro market trends, there's a very good chance that the market will see some kind of a downward move, but of what magnitude, we're not prepared to say," said Brian Belski, market strategist with U.S. Bancorp Piper Jaffray.
"But we do think that employing that panicky investment strategy, scrapping your existing strategy and buying all defensive names is not the way to go. Stay focused with your existing disciplines and not stray from those," Belski said. The stock market has been closed since Tuesday's terrorist attacks. Monday's opening bell will follow the longest suspension of trading since the Great Depression.
Automaker Ford Motor Co. (F: Research, Estimates) said late Friday disturbances in transportation following last Tuesday's attack in New York and Washington has hampered delivery of components forcing it to cut its third quarter car production by 110,000 to 120,000 vehicles.
"As a result, third quarter results now will fall short of our previous forecast for earnings of 10 cents per share before one-time items," Ford warned in a statement.
Ford's warning was followed by General Electric (GE: Research, Estimates) which said its Employers Reinsurance Corp., its insurance business arm was facing $600 million in claims before tax or $400 million after tax, cutting GE's third quarter forecast by four cents a share to 33 cents per share.
Delta Air Lines (DAL: Research, Estimates), the nation's third largest airline said the attacks could have a material adverse impact on its financial condition or results of operations.
Sectors to watch
Airlines: Boeing (BA: Research, Estimates), $34.36; UAL Corp. (UAL: Research, Estimates), $30.82; AMR Corp. (AMR: Research, Estimates), $29.70; Continental Airlines (CAL: Research, Estimates), $39.64; US Airways (U: Research, Estimates), $78.44; Northwest Airlines (NWAC: Research, Estimates), $19.62.
Sector analysts fear that an industry shutdown in the wake of Tuesday's attacks is enough to wreck havoc on an already depressed sector and bring many carriers to the brink of bankruptcy.
Airlines have been struggling with severe revenue shortage from a steep drop in demand for air travel.
"The sector has been pretty terrible up to this point, even without the industry shutdown. So what has happened now is like piling on to an industry that was already down. Barring sharp gains in the overall market, and if the markets goes down, then the airlines may well be down more than the overall market on a percentage basis," said John Pincavage, president of Pincavage and Associates.
Insurance: AIG (AIG: Research, Estimates), $74.26; Chubb (CB: Research, Estimates), $66.47; Allianz (AZ: Research, Estimates), $23.79; Hartford (HIG: Research, Estimates), $61.91; Berkshire Hathaway (BRK.A: Research, Estimates), $68,000.
Insurance companies are bracing to cope with what is being termed as the worst disaster in insurance history, with insurance claims from the World Trade Center attack likely to reach an astounding $30 billion.
"This is the sector which is most directly impacted from property casualty, coverage and liability. Some of the estimates are up to $10 billion-to-$20 billion for some of the largest companies. I suspect earnings will suffer at least in the near term. However, having said that, I don't believe there is panic in these companies," said Howard Carver, Insurance analyst with Ernst & Young.
Defense and Aerospace: Northrop Grumman (NOC: Research, Estimates), $81.94; Raytheon (RTN: Research, Estimates), $24.85, EDO (EDO: Research, Estimates), $20; DRS Technologies (DRS: Research, Estimates), $25.15; Boeing (BA: unchanged at $43.46, Research, Estimates), $43.46.
The defense sector is expected to benefit in the short term as investors bet on the possibility of a U.S. military retaliation to the assaults.
"From the aerospace sector, we expect the companies that have heavy commercial exposure, in particular relating to the civil airliner business, will experience some weakness due to the expected slowdown in air travel in the next six to nine months.
The flip side is that many of the same companies are also heavily involved in the defense sector, which we expect to experience additional plus ups and accelerated production orders from various parts of the defense industry over the next several months," said Peter Arment, vice president, JSA Research.
Integrated Oil: Amerada Hess (AHC: Research, Estimates), $76.92; Conoco (COC.A: Research, Estimates), $30.60; Kerr-McGee, $59.70; Exxon-Mobil (XOM: Research, Estimates), $41.24; Philip Petroleum (P: Research, Estimates), $55.53; Chevron (CHV: Research, Estimates), $91.70; Royal Dutch Petroleum (RD: Research, Estimates), $53.87.
As the market look for its investing tone next week, market strategists are betting that investors will make a heavy play for defensive areas within the market, such as oil and energy stocks. "I expect the integrated oil sector to help support the market if it goes down.
Aside from the fact that oil prices are expected to be volatile, a lot of these major oil companies are big defensive plays. I expect to see a move into the integrated oil companies stocks throughout the course of next week going forward," said Bruce Lanni, oil analyst with A.G. Edwards.
"When investors start to look for safe havens to put money into, they'll look to energy. Domestic integrated oil companies will do really well. Most likely, the companies that will get a bigger push are the more diverse International integrated oil companies like Exxon-Mobil. That sector is probably going to outperform the market, irrespective of what the market does," Lanni said.
Consumer Staples/Retail: Procter & Gamble (PG: Research, Estimates), $74.20; Gillette (G: Research, Estimates), $31.20; Coca-Cola (KO: Research, Estimates), $49.95; Colgate-Palmolive (CL: Research, Estimates), $57.26; Duane Reade (DRD: Research, Estimates), $35.61; Wal-Mart (WMT: Research, Estimates), $46.23; CostCo (COST: Research, Estimates), $34.17; Kroger (KR: Research, Estimates), $27.05; CVS (CVS: Research, Estimates), $36.24.
Consumer cyclicals are another defensive area investors will be looking at because they don't necessarily have a one-for-one correlation with market risks or marker reactions, according to market strategists.
"Consumer staples outperformed the overall markets in Europe, and I would assume that would be the case here as well. You've got to eat, you've got to take your prescription drugs. I would really be looking at Kroeger, Wal-Mart and CVS," said Deborah Weinswig, sector analyst with Bear Stearns.
"Wal-Mart has three things going for them. They said that 51 percent of their total sales are sold at the supermarket. They offer low prices, which is what consumer will be looking for in a slowing economy. And the third thing is-- What is more American than Wal-Mart? The sentiment at the moment will be it's your patriotic duty to spend money. Kroger offers the lowest prices of the big three retailers – Albertson's (ABS: Research, Estimates), Kroger and Safeway (SWY: Research, Estimates)," Weinswig said.
Other stocks to watch Monday
Cisco (CSCO: Research, Estimates), $14.47. The tech bellwether set a stock buyback of $3 billion over the next two years in a bid to bolster investor confidence in its sagging stock.
Oracle (ORCL: Research, Estimates), $11.46. The software provider edged Wall Street earnings estimates in its first fiscal quarter, posting a slight gain in profit despite slightly lower revenue.
Hewlett-Packard (HWP: Research, Estimates), $17.89. The computer maker has started talking to the European Commission about its planned purchase of Compaq Computer Corp. even before making a formal filing.
WALL STREET
Huge Obstacles as the Markets Try to Reopen
By LESLIE EATON and KIRK JOHNSON
September 16, 2001
http://www.nytimes.com/2001/09/16/nyregion/16EXCH.html
Debris littered some streets of the financial district. National Guard members in camouflage uniforms manned checkpoints. Abandoned coffee carts, glazed with dust from the collapse of the World Trade Center, lay on their sides across sidewalks. Most subway stations were closed, most lights were still off, most telephones did not work, and only a handful of people walked in the narrow canyons of Wall Street yesterday morning.
But the New York Stock Exchange insists that somehow, it will open for business at 9:30 tomorrow morning [Page A17.]. No ifs, ands or buts. No Plan B. Although the exchange passed an important computer test yesterday, great obstacles remain.
Think about what it means: thousands of people surging into the area. (Three thousand work directly on the exchange floor, tens of thousands at securities firms nearby.) Power to drive all the computers, lights, air- conditioning. (The exchange uses about 3,500 kilowatts a day.) Telephone and data links. (There are 8,000 phone circuits on the trading floor, and 200 miles of fiber-optic cable below it.) Coffee and cigarettes and tuna salad sandwiches by the thousands.
Can it really happen? Mayor Rudolph W. Giuliani says it can. So does Richard A. Grasso, the chairman of the exchange, which is at 11 Wall Street. "We are very, very confident that come Monday morning the greatest capital market on earth will indeed be back in business," he said yesterday as technicians tested the equipment that links customers to traders.
Government officials and financial leaders are eager to open the exchange and resume trading for symbolic, and practical, reasons. Millions of people do not know the value of their investments. Investors who want to sell shares, or buy them, cannot. The government is losing taxes every day the markets remain closed, and the exchange itself risks losing business to other markets, like the all-electronic Nasdaq, which is also scheduled to reopen tomorrow.
While the district was still closed off completely Friday, by yesterday morning things had begun to improve. Some subway trains began stopping in the financial district, though service was erratic.
Many streets remained closed, but vacuum trucks were sucking up dirt and dust that continued to rain down from the plume sent up after the twin towers collapsed. And people trickled into the area to take pictures and view the damage.
At the stock exchange itself, some traders said they did not have all of their phone and data lines. But the exchange said there were enough to resume trading.
"Just getting here was very, very difficult, emotionally," said Francis D'Aquila, a Lehman Brothers broker who was working on the exchange floor yesterday. "I couldn't believe I was walking down here to do monetary business while they are still looking for people."
His wife did not want him to go back to the exchange, but, he said, "I've got to do it."
Security remained tight around the exchange, which has long worried about a terrorist attack, and with reason: on Thursday, Sept. 16, 1920, a bomb went off on Wall Street outside the offices of J. P. Morgan, killing dozens and wounding hundreds.
But not everyone is ready or able to put aside the memories of Tuesday, Sept. 11. David Humphreville, an executive director of the Specialist Association, lives in TriBeCa and walked to work every day through the trade center. He saw the first plane hit. He saw both towers collapse. He spent Thursday night ferrying supplies to the rescue workers in the World Financial Center.
"Many people are anxious to have the markets open and the exchange up and running," he said. "I don't know what I'm anxious for. Nothing's normal down here."
But he plans to be at work tomorrow. So do many of the employees of Goldman, Sachs, which has its headquarters a couple of blocks southeast of the exchange. "We anticipate that when the equity markets reopen on Monday that we'll be fully functional and ready to serve our clients," said Kathleen Baum, a spokeswoman for the firm.
How will thousands of people get to Wall Street, which has been barricaded for days? They will use public transportation, Mr. Grasso said.
The No. 4 and 5 lines will skip Wall Street, but car doors are supposed to open at Bowling Green. And transportation officials have said they plan to reopen the Broadway-Nassau Street station to the A train and the Broad Street station to the J train.
Buses will emerge from the Brooklyn-Battery Tunnel and continue up Water Street. Confused commuters will find big metal signs, with arrows pointing to Wall Street.
Some workers, perhaps a lot of workers, will be arriving by water to Pier 11 at the foot of Wall Street. NY Waterway, the ferry company, said Friday that it had borrowed four 400- passenger boats from the Fire Island ferry line to supplement its regular fleet of 24 vessels.
No one will be able to drive to the area, and Mr. Grasso said some streets around the exchange would probably never reopen to cars.
The lights will be on, at least at the exchange; the southeastern tip of the financial district did not lose power. More than 10,000 customers in Lower Manhattan are not so lucky.
Because there is no power at one of Verizon's main buildings, many phones remain out, but they are likely to be restored once emergency generators are brought in, phone company officials said.
A more serious problem is that many lines, including about 20 percent of the data lines that connect to the stock exchange, ran through a building on West Street that was heavily damaged when 7 World Trade Center collapsed.
Verizon is "working like crazy" to get as much service as possible restored by tonight, said Lawrence T. Babbio Jr., vice chairman and president of Verizon Communications.
The big firms that were displaced by the collapse say they are ready to start trading from their backup locations. Lehman Brothers, which had to evacuate its headquarters in the World Financial Center, quickly moved into office space at 101 Hudson Street in Jersey City that is usually occupied by operations and technical staff, said William J. Ahearn, a company spokesman.
Cubicles were taken down, desks moved and phones and computers installed. "We don't have the pretty flat screens; this is last year's technology," Mr. Ahearn said. "But we're making a lot of computer salesmen happy."
Smaller firms are still struggling. One, which asked not to be named because it is worried about being a terrorist target, does not expect to be able to get back into its office by tomorrow. So it has arranged to share space with two other companies in New Jersey, and hopes that it can get an overnight delivery company to move 30 old computers into an interim headquarters.
Lots of details were still up in the air yesterday, but officials of the firms and the exchanges hope to know more by today. This afternoon, CNBC, the business news channel, will devote the hours from 4 to 8 p.m. to informing Wall Street employees how to get to work and what to expect when they get there.
But Wall Street is far more than just a bunch of financial firms; it is also host to small businesses: newsstands and jewelers and florists and delis. Those businesses have a big job ahead.
Take Chris Katehis, who owns Wall Street Catering and Backyard Chicken, at the corner of John and Pearl Streets.
When disaster struck, he had time only to turn off the power and run. Nearly 100 chickens, ready to serve or still skewered on their rotisseries, are now spoiled. He and his 20 employees plan to spend the weekend cleaning and throwing away more than $30,000 worth of rotten food.
He has a nagging question about his employees. Some have expressed anxiety about going back, he said. And he thinks some may quit.
"My employees got scared watching so many people running for their lives," he said. "It's more than likely if they have the opportunity to find a job elsewhere, they will take that opportunity."
Thanks, Frank. Have a good weekend.
China-U.S. tensions are forgotten
Unusual unity between Beijing
and Washington after attacks
http://www.msnbc.com/news/628815.asp#BODY
ASSOCIATED PRESS
BEIJING, Sept. 14 — On a sidewalk where two years ago protesters stoned the U.S. Embassy, strangers now leave funeral wreaths. Putting aside months of angry words over Taiwan and a spy plane collision, China’s president is offering help with rescue efforts.
THE TERROR ATTACKS Tuesday in New York and Washington are prompting unusual unity and an outpouring of sympathy from China, which more often talks of the United States as an arrogant bully.
Setting aside political tensions, President Jiang Zemin told President Bush that Beijing wants to work with Washington and other governments against terrorism. Jiang also offered “all necessary assistance” for rescue work, state media said Thursday.
Two Chinese were aboard American Airlines Flight 77, which struck the Pentagon killing 64 passengers and crew, said consular officer Li Ruiyou at the Chinese Embassy in Washington. Zheng Yuguang and his wife Yang Shuyin, both from Beijing, were visiting their daughter in northern Virginia, Li said.
Foreign Ministry spokesman Zhu Bangzao said 18 Chinese firms and institutions had offices in the World Trade Center. Eleven firms have accounted for their employees, Zhu said, but five other Chinese firms have yet to be contacted by Chinese diplomats.
U.S.-based Chinese diplomats opened hotlines for information and worried Chinese posted messages on the Internet.
“Cai Wenke in New York, your relative Cai Guangchang in China is very concerned,” read one message on the Web site of Phoenix TV, a Hong Kong-based satellite broadcaster. “If you are safe, please contact Cai Guangchang immediately.”
In Beijing, the U.S. Embassy lowered the Stars and Stripes to half-staff but stayed open. Chinese lined up outside for visas, many reading newspapers with the destruction splashed in photos across front pages.
In 1999, tens of thousands of Chinese pelted the embassy with rocks after U.S. planes mistakenly bombed China’s embassy in Yugoslavia during the war over Kosovo. More recently arguments over Taiwan, China’s detentions of U.S. citizens and permanent residents and a collision in April between a U.S. spy plane and a Chinese fighter jet soured ties.
OUTPOURING OF SYMPATHY
But this week, people phoned and e-mailed the embassy with messages of sympathy and some laid flowers outside.
“I feel so angry, and so sad that so many died,” said Gu Chongqing, a 21-year-old university student who brought a bouquet of forget-me-nots and chrysanthemums Thursday. “It’s unthinkable.”
Bush is due to make his first visit to China as president next month, for a meeting of Asia-Pacific leaders. Beijing said Thursday that the visit would go ahead, despite the attacks, which were broadcast via satellite into Chinese homes.
People with friends and relatives living, working and studying in the United States, tried desperately to contact loved ones after two airliners crashed into the World Trade Center’s 110-story twin towers.
In Shanghai, telephone calls to the United States surged 14-fold in 11 hours. In the busiest four hours, 78,000 calls were made, 20 times more than normal, but only 30 percent got through because U.S. lines were jammed, said Zheng Jianpin of China Telecom, Shanghai.
Meanwhile, armed guards were posted around Northwest and United Airlines jetliners at Shanghai’s new Pudong International Airport. Police said the guards, posted at the request of the airlines, would remain until the planes leave.
Security also has been stepped up for U.S. firms in Shanghai and the U.S. consulate in the city, the official Xinhua News Agency reported.
Agreement reached on Chinese entry to World Trade Organization
ASSOCIATED PRESS
http://famulus.msnbc.com/FamulusIntl/ap09-14-110413.asp?reg=PACRIM#body
GENEVA, Sept. 14 — China reached an agreement Friday on the terms of its membership in the World Trade Organization, setting the stage for it to become a full member early next year.
Wrapping up 15 years of tough negotiations, a compromise was reached over the remaining obstacle — a dispute over insurance companies. The agreement opens the way for China to be formally approved at the WTO's meeting of trade ministers scheduled to be held in Doha, Qatar, in November.
Allowing for the accord to pass through China's own legislature, the world's most populous nation would become a full WTO member during the first months of 2002.
The entry of the world's most populous nation into the WTO will open China's economy to imports but will also lead to an upsurge in Chinese exports to the rest of the world. China will also be required to adhere to global trading rules.
''The decision to bring China into the WTO will commit China to adhering to the rules-based global trading system,'' said Jeffrey Bader, chief U.S. negotiator. ''It will open markets and contribute greatly'' to encouraging reform in China.
China applied to join the WTO and its predecessor the General Agreement on Tariffs and Trade 15 years ago. The application process was caught up in political problems over Beijing's crackdown on the pro-democracy movement and economic fears that China would use its vast labor market to undercut competing products.
A deadline of Thursday had been initially been set for the draft accord, but negotiations were adjourned for two days on Wednesday following the terrorist attacks on New York and Washington. The agreement must be rubber-stamped by negotiators at another meeting on Monday before it can be sent to trade ministers in Doha.
One of the final stumbling blocks was removed Thursday when Mexico and China reached a bilateral accord. Mexico was the last WTO member to hold out against Beijing.
That left just one remaining hurdle — a complicated dispute involving the United States and the 15-nation European Union over insurance and accounting for just one paragraph in a treaty of more than 1,000 pages.
U.S. insurer American International Group, which has operated in China since 1994, wants guarantees that it can continue to expand without having to find Chinese partners. The draft WTO text states that new companies joining the life insurance market must be 50 percent Chinese owned. European companies, which operate as joint ventures with Chinese partners, insist that AIG must play by the same rules as they do.
The share of North American imports coming from China rose from 0.8 percent in 1983 to 7.3 percent by 1999, and in European stores ''Made in China'' labels are widespread. Chinese sales abroad are expected to soar further once Beijing joins the WTO and thus gains easier access to other markets.
China has already started reducing some import tariffs — for example on automobiles, whetting 'foreign appetites at potentially enormous sales.
As a sign of its supreme confidence, China has built a new mission to the WTO, a high-tech building on the lake shore with stunning views of the Alps — a far cry from the modest U.S. and EU trade missions.
Do not expect the markets to open Monday with any sorts of restrictions on them. Capitalism, at its core, is about free and open markets. The markets must be allowed to do what they will do, to go where they will go. Allowing this freedom of market movement is, in the long term, the most healthy approach...in my opinion.
I suggested to Bart Fisher that they might wish to donate some of the laptops they are currently testing to one of the government agencies formerly housed in buildings destroyed/damaged on Tuesday.
We'll see if anything comes of that.
Bart Fisher is scheduled to travel to China on Wednesday to expedite and finalize all of the importation arrangements. There are a lot of parties interested in purchasing Chinese-manufactured laptops it seems.
It remains to be seen whether international travel will be permitted, however, by next Wednesday.
Of course, this doesn't change the fact that the closing Bid and Ask price of CBQI stock was .11 and .14 on Monday, September 10. That is down roughly one-third from the closing Bid and Ask price of .17 and .21 on April 13.
Nevertheless, I was glad to hear that more people have bought into this stock.
Interesting fact:
As of April 13, 2001, there were approximately 475 shareholders of CBQI stock.
As of September 13, 2001, there are approximately 1,100 shareholders of CBQI stock.
I have this on good authority---the CEO of CBQ, Inc., Bart Fisher.
This bears repeating.
Folks, there are those who pooh-pooh the concept of importing Chinese-manufactured computers to the United States. You've read it here for the past several weeks. Well, Jack Welch doesn't agree.
From the Fortune interview with Jack Welch:
Over the next ten years what will be the big story for CEOs?
I think that China and its impact on developed economies--and how developed economies and their politicians react to it--is going to be a huge story. We'll be wrestling with many of the same issues that we had in the late '70s and early '80s with the Japanese, and imported cars and televisions. Now it'll be computer peripheral equipment and all that stuff. Just think of the impact Taiwan has had on the U.S. Now multiply that by 1,000, or whatever the number is.
Everyone talks about China as a market. I see it equally important, and maybe more important, as a competitor. The scale of China is best shown by a strategic boo-boo I made. We figured lighting would be a good business for us there--high technology, capital-intensive, and you're up against only four big global competitors--so we bought a couple of local companies. What happens? Every mayor in every town in China decides to build a lighting factory. Now there are 2,000 lighting competitors in China. Not ten or 20 but 2,000 guys with lighting brands. When they go after something, it's overwhelming.
There are few business executives I can think of who are worth listening to more than Jack Welch. I was fortunate to view a video tape of a visit Welch made to John Kotter's classroom at Harvard Business School. He was a compelling speaker and answered questions in a forthright and disarming fashion. One of the quotes that struck me from that session went something like this (I paraphrase): When the rate of change outside the company exceeds the rate of change within the company, then the end is near.
Please note the bold text in the following Fortune 500 interview in the Sept. 4th issue of Fortune magazine:
Jack: The Exit Interview
FORTUNE
Monday, September 17, 2001
By Rik Kirkland and Geoffrey Colvin
http://www.fortune.com/indexw.jhtml?channel=artcol.jhtml&doc_id=203976
Working on a book about his 40 years in management put Jack Welch in a reflective mood--an uncharacteristic state for this tough-minded CEO. As he himself puts it, "I was never a person who looked back." Taking advantage of his weakened condition, FORTUNE's Rik Kirkland and Geoffrey Colvin tracked Welch down at his summer home in Nantucket and found him eager to talk about a wide range of issues.
What has been the biggest change in business during your time as CEO?
By far, speed. How fast you can adapt your goals is the main measure of what kind of company you've got. So you've got to be getting people to relish change. You've got to talk about change every second of the day.
Isn't there a destabilizing element in this? We have some companies that are giving their CEOs just eight, ten, 15 months.
This is stupid. Stupid. The board and the CEO have got to be partners. If you've got a second-guessing board, you've got yourself a problem from day one.
You've been through several economic cycles. How do you characterize where we are now?
I'm surprised the unemployment level is not higher. I'm surprised at the way housing has held up. But the breadth of the dropoff in sales for industrial and technology companies is worse than it was in the early '80s. To get out of this, we need to see confidence come back. I think the stock market plays a bigger role today than it ever played in previous recoveries.
What do you make of the antiglobalization movement?
In good times people don't like companies or armies. You love armies in World War II. You love companies in recessions. This whole environmental movement, for example, has clearly gained its momentum from the lack of trust of corporations and a lack of trust of government. So everybody can sort of salve their conscience by backing these "good people" who are doing something "healthy." I think it comes out of a lack of confidence in institutions. At the same time I'd argue that no one who sees globalization done by good companies firsthand can ever be against it.
Over the next ten years what will be the big story for CEOs?
I think that China and its impact on developed economies--and how developed economies and their politicians react to it--is going to be a huge story. We'll be wrestling with many of the same issues that we had in the late '70s and early '80s with the Japanese, and imported cars and televisions. Now it'll be computer peripheral equipment and all that stuff. Just think of the impact Taiwan has had on the U.S. Now multiply that by 1,000, or whatever the number is.
Everyone talks about China as a market. I see it equally important, and maybe more important, as a competitor. The scale of China is best shown by a strategic boo-boo I made. We figured lighting would be a good business for us there--high technology, capital-intensive, and you're up against only four big global competitors--so we bought a couple of local companies. What happens? Every mayor in every town in China decides to build a lighting factory. Now there are 2,000 lighting competitors in China. Not ten or 20 but 2,000 guys with lighting brands. When they go after something, it's overwhelming.
Last month, the EPA ended 26 years of debate and ordered GE to dredge PCBs out of the Hudson River. Were you surprised by that decision?
I think it was an outgrowth of the public relations beating the Bush Administration took for pulling out of the Kyoto Treaty and of [New York Governor] George Pataki's desire to get maybe three extra people--which he won't get--to back his reelection. This is based on political science, not science.
Any regrets about postponing your retirement to try to pull off the Honeywell merger, given that it ultimately fell through?
When the chance to do this deal came along last October, I had two choices--take a swing or not. It was a no-brainer. Why would the last act of my corporate life be to play it safe?
What's next for Jack Welch?
I hope to work with half a dozen CEOs in a quiet, back-of-the-room fashion, doing the things I like to do. Teach their middle managers. I hope I'll be able to help succession processes. I hope I'll be able to get involved in interviewing for key slots. I hope I'll come up with processes to raise the intellectual content of the companies. I mean, at GE, every idea started as a little seed. It was the people who worked there who sprayed the fertilizer on it. I hope to be able to do that. I still love the game.
You say in the book that GE will have to change more over the next 20 years than it did in the past 20. What will GE look like when you're celebrating Jeff Immelt's retirement in 2021?
The portfolio will look different. I don't know how exactly. But he's got the courage and the brains to figure out where to go. And he's got a board--I think this is critical--he's got a board that knows that what I did wraps yesterday's fish.
Extra!
What happens when the markets reopen?
As leaders work to prevent a political and psychological crisis from turning into a financial one, history offers the only real guide on what to expect when the smoke clears.
By Jon D. Markman
http://moneycentral.msn.com/articles/invest/extra/7826.asp
If you go way back, it was 139 years ago next week that Gen. Robert E. Lee and his Confederate troops engaged the Union Army at Antietam, Md., in a battle that turned out to be the single bloodiest day in U.S. history. More than 26,000 soldiers from both sides were killed or wounded on that Sept. 17, 1862 -- a figure that might nearly be matched by the carnage of Sept. 11, 2001.
That attack, the first major thrust north by the surprisingly powerful Southern rebels, led President Abraham Lincoln to issue his Emancipation Proclamation – and open a new chapter in American civil and business life, a new era of liberty for people and markets.
Likewise have most major events in U.S. economic history led to consequences unimagined by key actors at the time. And so it will probably be with this attack. Sources across the country told me Tuesday that they believe that the unexpected consequence over the next few days and months could be a stock-market rally led first by promises by the Federal Reserve to provide all necessary funds to staggered banks and brokerages and next by vast deficit spending by Congress to shore up the country’s defenses.
Michael Stutzer, professor of finance at the University of Iowa, points out that Tuesday’s events were a civil and emotional crisis, not a financial crisis. An emotional crisis, he said, can lead to a financial crisis only if mishandled by government authorities. “A financial crisis is what happened in Japan, where people learned that not only were all the stocks they held were overvalued but that their government had a hand in leading their banks to bankruptcy,” he said. “Nothing like that is happening here. But what does have to happen now is that the Fed must act to prevent a ‘contagion of fear’ from spreading and leading people to withdraw money and stop buying things. That would lead to a recession and thus to a real financial emergency.”
A few predictions
What are the likely immediate consequences when the U.S. markets reopen later this week or next?
Anthony Kolton, chief executive of Markethistory.com in Chicago, has researched the past 100 years of events that led the United States into war. He forecasts with confidence that the major indexes will open with losses of 5%, then quickly recover by the end of the following trading week to remain unchanged at pre-catastrophe levels. “If there is a big opening plunge, I think you’ll see a total recovery over the next five days,” he said from Manhattan.
Kolton, who was en route to a meeting at the World Trade Center when the buildings were hit, said he also believes that the United States does not face a financial crisis just because the buildings that were destroyed stood at the center of U.S. financial life. The reason: After the 1993 bombing of the buildings, he says, most companies spent millions to build disaster recovery systems and back up all their accounting far off site. “We’re going to recover,” he said.
Steve Milner, managing partner of the worldwide financial planning firm Squar Milner in Newport Beach, Calif., said he is most worried about the consumer, not business. Based on conversations with clients, he believes that people will react with fear -- and fearful people rein in their spending on everything from vacations to home remodeling and stocks. That will be a real, not an imagined, economic event, he believes, that could badly damage a U.S. economy that is already sputtering.
Milner also notes that many major financial institutions that he does business with were already inclined to be sellers of the recent decline, not buyers. But that could turn around. “People who were inclined to sell might be more inclined to sell now – but I doubt it,” he said. “There is a cynical part of me that says financial professionals will realize that life goes on and will decide to be buyers.”
Vic Niederhoffer, a longtime trader for financier George Soros and his own accounts, says that he also believes that a big down market will find buyers. “I really hate to sound mercenary, but I have received many messages from traders who say that they think this will be a terrific opportunity to buy. Whether you look at the John F. Kennedy assassination, the Eisenhower heart attack, the Warren G. Harding ptomaine poisoning or airline crashes, usually disasters provide the greatest times of opportunity,” he said.
Niederhoffer, a student of economic history, said that in the past disasters have led to a tremendous boost for local and national economies as capital infrastructure gets rebuilt with the most modern equipment. Those two buildings alone will require massive outlays of funds – possibly provided by the Fed or Congress from the U.S. Treasury – to build miles of new fiber-optic lines, buy the latest data-transmission switches, and possibly tens of thousands of new computers and software.
“Everyone will chip in to help and this will turn out to be a transitory event,” Niederhoffer said. “It may cause a temporary slowdown in the U.S. economy and a big disruption in the supply chain, but there is no evidence that declines in products or earnings or commerce have anything to do with stock prices anyway. In fact, there is no evidence to suggest that stocks do any worse in recessions than they do in better times.”
Mr. P, a hedge fund trader that I have quoted in past columns, said he likewise believes that the first day’s move could set a bottom to the market. “This is very bad for bonds, very good for stocks,” he said. “This act of war, with the magnitude of the loss of life, will lead Congress to engage in deficit spending like the world has never seen -- selling billions of dollars of new government bonds to cope both with the reconstruction of New York and the build-up of the American military.”
Always, history offers perspective
So what if these scenarios don’t pan out? The global financial system was already in bad shape before Tuesday and sellers of stocks were swamping buyers with growing intensity. If worried investors decide to put all their personal funds in a lockbox and the Fed and Congress stand aside, you could look to the last major financial crises for the floor in the market.
The October 1987 crash left the Nasdaq at 323 at its nadir, a level reached again four years later in October 1990 at the moment of greatest panic over oil supplies during the Gulf War against Iraq. If the markets had risen from there in a straight line that approximated the historic 6% return of stocks, that index would be at around 690 today instead of 1,680.
That could be a real floor, but it’s unlikely to transpire if authorities do their job and thus avoid the fate that befell Gen. George McClellan two months after Antietam. President Lincoln replaced him with Ambrose E. Burnside after complaining about McClellan’s failure to press his advantage after victory. His comment: “If you don’t want to use the Army, I should like to borrow it for awhile.” The Bush administration likewise has a vast set of financial weapons at its disposal to battle this assault, and the public will replace it if used unwisely and too slowly.
Hong Kong and China
One country, how many systems?
Aug 2nd 2001 / HONG KONG
From The Economist print edition
Relations between Beijing and Hong Kong are being tested
http://www.economist.com/displayStory.cfm?Story_id=719594
At least justice is colour-blind
EVEN as Li Shaomin flew into Hong Kong from America this week, senior officials in the territory were still agonising over whether they should let him in. Less than a week earlier, Mr Li had been convicted by a court in China of spying for Taiwan and had been deported to the United States, of which he is a citizen. His arrival in Hong Kong, where he lives, was being touted by Hong Kong's media as one of the biggest tests since the end of British rule in 1997 of the “one country, two systems” principle by which the territory is now ruled.
Mr Li was eventually allowed to enter, after being detained for some five hours at the airport. It appeared to have been a close call. Could a man deported for spying return to the territory of the country whose secrets he had allegedly tried to steal? Some of China's supporters in Hong Kong, including newspapers loosely under Beijing's control, argued that Mr Li should not be allowed to return to the territory, where he works as an associate professor. Hong Kong and the mainland may have different legal systems, they said, but the “one country” idea should prevail in matters relating to state security.
Hong Kong officials insist they were not under any pressure from Beijing. But a senior civil servant who asked to remain anonymous admitted it was “a highly sensitive issue”. Ever indecisive, Hong Kong's chief executive, Tung Chee-hwa, apparently waited until Mr Li was on the ground before making up his mind.
It is possible that despite the concerns of his officials and the protestations of some pro-Beijing figures, Mr Tung sensed that China would not seriously object to the academic's return. Mr Li's conviction and deportation from China, after all, could well have been as much if not more to do with diplomatic manoeuvring between China and the United States as with any perceived threat to national security. No one has publicly suggested that Mr Li had anything more than “internal” publications about Taiwan of a kind commonly circulating among Chinese scholars.
“One country, two systems” has been through some trying times lately
But even if so, “one country, two systems” has been through trying times lately. Ten days before Mr Li's return, a ruling by Hong Kong's Court of Final Appeal in effect granted right of abode in the territory to more than 2,200 children born in Hong Kong to parents from the mainland. China was incensed. A Chinese spokesman said the ruling appeared to go against a judgment on the right of abode made by the National People's Congress in 1999. Both China and the Hong Kong government are fearful that any easing of residency restrictions might unleash a potentially destabilising flood of immigrants into the territory.
Many in Hong Kong and abroad had attacked the 1999 judgment as a breach of Hong Kong's promised “high degree of autonomy” under Chinese rule. This time there were again concerns that the Hong Kong government would invite the NPC to overrule the Court of Final Appeal. But Mr Tung held his ground in the face of Beijing's mutterings. Again, as with the case of Mr Li, he probably calculated that Beijing would in the end understand the need to avoid causing further damage to Hong Kong's image. Hong Kong recently launched a campaign to promote itself as “Asia's world city” to ensure that investment continues flowing into its struggling economy. Image matters to Mr Tung.
One recent tactical error was his government's decision to propose legislation–eventually passed on July 11th after furious debate in the legislature—which included a clause saying that China had the power to sack Hong Kong's chief executive; this had been unclear before. Pro-democracy politicians accused Mr Tung of eroding Hong Kong's autonomy. Hackles were also raised by Mr Tung's harsh description of the Falun Gong spiritual movement as an “evil cult” and his decision to order officials to study anti-cult laws in other countries. But officials privately suggest this is little more than ritualistic denunciation aimed at easing Beijing's paranoia. “We are dealing with the Falun Gong by not dealing with the Falun Gong,” Hong Kong's top civil servant, Donald Tsang, remarked in June.
Even Martin Lee, the leader of Hong Kong's Democratic Party and one of the government's most strident critics, admits that despite the occasional setback Hong Kong enjoys much the same freedoms that it did under the British. He puts this down not to Mr Tung's skills but to what he says is the Chinese leadership's sense of self-confidence. “What if they don't feel confident any more?” he says. “We are at the mercy of Beijing through the chief puppet [Mr Tung]. That is the worrying thing”.
China's stockmarket reforms
Second board, second thoughts
Aug 2nd 2001 / BEIJING
From The Economist print edition
http://www.economist.com/displayStory.cfm?story_id=719296
Shelving plans for a high-tech board
CHINA'S leaders are getting cold feet about setting up a second-board stockmarket, where listing requirements are looser, to help start-up technology firms on the mainland raise funding. Despite long preparations to establish such a market in the southern, free-wheeling city of Shenzhen, the launch, originally expected late last year, has once again been delayed.
The main reason for the dithering is the abysmal performance of second boards elsewhere, after the bursting of the high-tech bubble. Advocates of a second board in China say a coolness everywhere for technology stocks makes this precisely the right time for a launch. Better, they argue, that China's less-than-discerning investors be aware of the risks, rather than turn the new market into a casino like the main market for “A” shares (see chart).
Yet senior officials fear that, given the problems of regulating the main boards (in Shanghai and Shenzhen), setting up a new one for enterprises with little track record would be asking for trouble. The Nasdaq's plunge this past year would not necessarily make Chinese investors stop to think. China's markets tend to buck global trends. The mainland's markets are closed to foreign portfolio investors, except for a handful of shoddy companies with hard-currency “B” shares. And, since Chinese investors have precious few other outlets for investment, they pile into shares. The country has 60m-odd investors, along with countless “grey” investment funds.
China's leaders also worry that launching a second board now could divert funds from the main market at a time when the government is trying to sell stakes in listed state-owned enterprises—all part of the government's efforts to raise funds for a system of social security. Without such a system in place, tough economic reforms will meet public resistance.
Many countries developed their high-tech industries long before they had a second board. China's technology sector, on the other hand, has few options. State-owned banks are reluctant to lend to the kind of small, new firms that most need the funding. Venture capital is in its infancy in China. Small firms without links to well-established enterprises stand little chance of attracting outside investment.
So demands for a second board are considerable. Within government, the Ministry of Information Industry and the Ministry of Science and Technology argue most vociferously for an early launch. Yet Fred Hu, of Goldman Sachs in Hong Kong, says that Zhu Rongji, the prime minister, now wants to focus first on cleaning up the main market. Mr Hu believes that, when China's leaders meet for their annual huddle at the beach resort of Beidaihe this summer, Mr Zhu will argue for more delay.
Some of the bigger and better of the more than 200 firms waiting for listing on the second board have given up, turning their attention instead to China's main market. Hong Kong's second board, established in late 1999, could also be a beneficiary, though it fell far and fast when the bubble popped. China's technology sector is unlikely to suffer lasting damage, even if plans for a second board are put off even for two or three years. To get credit, or to list on other boards, technology firms will need to improve management and adopt stricter accounting methods. That kind of discipline might be a better start in life than a windfall from issuing shares.
China's Economic Structure
[Note: go to the article via link to view the table information.]
Sep 5th 2001
From the Economist Intelligence Unit
Source: Country Profile
http://www.economist.com/countries/China/profile.cfm?folder=Profile%2DEconomic%20Structure
"Leaving the land, but not the countryside"
Country Profile China
China is in the throes of a twofold industrial revolution. On the one hand, as in industrial revolutions in other countries, there is movement of people from the countryside to the towns. But an industrial revolution is also being encouraged in the countryside. While the majority of the labour force is still classified as rural (499m out of a labour force of 711.5m in 2000), as many as 150m of these, according to some estimates, have moved to cities in search of higher pay. Millions more who live in the countryside are not employed on the land. An agricultural survey conducted in 1996 found that nearly one-quarter of the rural labour force had taken employment in rural industry or services. Including dependants, the true peasantry now numbers between 480m and 530m. The "non-agricultural village population" included in 1999 about 127m employed in township and village enterprises (TVEs).
The process of industrialising the countryside is encouraged for many reasons: finding non-farm employment for millions in the countryside is vital if the productivity of agriculture is to rise; established urban centres are already lacking in infrastructure; and the existing, already stretched, social control system could not withstand a larger rural-urban migration.
Main economic indicators, 2000
Real GDP growth (% change, year on year) 7.8
Consumer price inflation (av; %) 0.4
Current-account balance (US$ bn) 10.2
External debt (year-end; US$ bn) 145.1
Exchange rate (av; Rmb:US$) 8.28
Population (year-end; bn) 1.3
Sources: National Bureau of Statistics, China Statistical Yearbook; IMF,
International Financial Statistics; EIU, CountryData.
The dominant role of industry
Economic growth has, for many years, been led on the supply side by increases in industrial output. Even before Deng Xiaoping's reforms, the Chinese economy was characterised by industry's unusually large share in gross output value. This was particularly striking because so much of the workforce remained on the land. At first, in the early 1980s, the reforms represented a shift of national resources towards agriculture, through a sharp rise in the procurement price paid for agricultural crops and what amounted to the privatisation of agriculture. However, by the late 1980s industry's contribution was again increasing as parts of the countryside began to industrialise. Meanwhile, services have also been growing rapidly, as controls on the economy have been reduced and demand for personal services has grown.
The state's share of industrial output shrinks
Industry has undergone a fundamental shift. Until 1978 output was dominated by large state-owned enterprises (SOEs). Since then, much of the boom in manufacturing output has been produced by "collective" enterprises, under the aegis of local governments, by TVEs or, increasingly, by private entrepreneurs or foreign investors either in wholly-owned enterprises or in joint ventures with Chinese interests. By 2001 the share of the official state sector in industrial output had shrunk to about one-quarter. Nevertheless the state sector tends to contain industries that are the most capital-intensive and often the largest in scale, and financing them absorbs a large share of national resources, especially financial resources.
Comparative economic indicators, 2000
China
India
Germany
GDP (US$ bn) 1,099 469 1,877
GDP per head (US$) 870 468 22,845
Consumer price inflation (av; %) 0.4 4.0 2.0
Current-account balance (US$ bn) 10.2 -5.1 -21.2
% of GDP 0.9 -1.1 -1.1
Exports of goods fob (US$ bn) 249.2 42.4 548.6
Imports of goods fob (US$ bn) 216.1 53.5 502.8
External debt (US$ bn) 145.1 95.8 n/a
Debt-service ratio, paid (%) 7.9 16.4 n/a
US
Japan
GDP (US$ bn) 9,963 4,753
GDP per head (US$) 35,352 37,558
Consumer price inflation (av; %) 3.4 -0.7
Current-account balance (US$ bn) -435.4 116.9
% of GDP -4.4 2.5
Exports of goods fob (US$ bn) 775.7 459.5
Imports of goods fob (US$ bn) 1,222.8 342.8
External debt (US$ bn) n/a n/a
Debt-service ratio, paid (%) n/a n/a
Sources: National Bureau of Statistics, China Statistical Yearbook; EIU,
CountryData.
Inland regions lose out
The coastal areas on China's eastern seaboard have benefited from their accessibility, their links with overseas Chinese and their more developed infrastructure. They have consistently achieved far higher rates of growth than the western provinces. Western China is in many places arid, mountainous or otherwise infertile. The main population centres have always been the wheat-growing plains of northern China and the rice paddies of the Yangtze Delta. The Ninth Five-Year Plan aimed to address the widening inequalities of wealth and income between the coast and the interior by concentrating investment, both domestic and foreign, in the interior provinces, and the Tenth Plan, which began in 2001, is continuing this emphasis.
Country Forecast China
Jul 11th 2001
From the Economist Intelligence Unit
Source: Country Forecast
China's domestic politics in 2001-02 will be overshadowed by the risk of social unrest, corruption and the approach of the Chinese Communist Party's (CCP's) 16th National Congress in 2002. Sino-US relations will run an unsteady course, but both sides will put trade considerations first. The US president, George Bush, is supporting China's entry into the World Trade Organisation (WTO) and the US will probably not oppose China's Olympic bid despite a succession of political difficulties that have marred the bilateral relationship. Economic policy in 2001-02 will be dominated by expansionary monetary and fiscal policies aimed at maintaining GDP growth despite a slowing world economy. Structural reforms will continue where there is clear advantage to be gained but slow where there is a threat of social unrest. Despite increased government spending, real GDP growth is likely to slow slightly to 7.6% in 2001, pulled down by slower merchandise export growth, before picking up again in 2002 as world economic growth accelerates. Consumer price inflation will remain low, averaging 1.7% in 2001-02. The current-account surplus will narrow during the forecast period.
Key changes from last month
Political outlook
Repression is intensifying even as incidents of social unrest and protest multiply. The authorities are cracking down harder on crime, corruption and illegal organisations. Investigations continue into misconduct by state and party officials and the CCP is tightening curbs on the media.
Economic policy outlook
Although the first meeting of the working party on China's WTO accession ended in July with representatives from key countries trumpeting a "major breakthrough", there is still a risk that disputes during talks in the coming months will delay approval until 2002.
Economic forecast
With data released for the first five months of 2001 showing price rises for food and recreational services, the EIU has raised its forecast for average consumer price inflation in 2001 from 1.2% to 1.4%.
China’s economic worries
Sep 3rd 2001
From The Economist Global Agenda
http://www.economist.com/agenda/displayStory.cfm?story_id=767637
China’s economy has withstood the global slowdown to achieve growth in the first half of this year of just under 8%. But while the outside world gasps at this resilience, China’s own policymakers seem to be biting their nails
SCANNING their regional neighbourhood over their tea-cups from their computer terminals in Beijing, China’s economic planners could be forgiven a certain feeling of smugness. All around them, countries are either teetering on the brink of recession or already coping with plunging output. Most important is the imminent prospect of a return to recession in Japan; but even in China’s own autonomous region of Hong Kong, GDP grew by just 0.5% in the second quarter of this year compared with the same period last year. Taiwan and Singapore, meanwhile, are both already suffering sharp contractions. Against this background, China’s achievement of GDP growth of 7.9% in the first half of this year seems little short of spectacular, even allowing for an element of statistical exaggeration.
But it is noticeable that China’s top policymakers seem more inclined to fret than to gloat. And with good reason: even a moderate downturn could have a big impact on employment prospects, and that in turn might have devastating social and political consequences.
There are reports that this summer these worries dominated the Chinese leadership’s annual conclave at the seaside resort of Beidaihe. Last month, Zhu Rongji, the prime minister, chided an audience in the provinces not to “overestimate our achievements”, and argued for a fresh boost to the economy. In recent days the theme has been taken up by Zeng Peiyan, the planning minister, who has promised a vaguely-formulated eight-point stimulus package, and the Communist Party’s People’s Daily has called for measures to guarantee growth.
Mr Zeng listed five big “challenges” facing the economy. The biggest, naturally enough, was the “harsh international economic situation”. China is not nearly as dependent on overseas trade as Taiwan, Hong Kong and Singapore. Nor is it as vulnerable as, say, Taiwan and Singapore to a slump in demand for products in a single industry, such as information technology. China’s exports are very diversified, with textiles accounting for a fifth and machinery for 29%. But they now make up around a fifth of China’s GDP, and their growth rate is falling sharply: from nearly 28% for last year as a whole to just 4.6% in the second quarter of 2001. Nor are there immediate prospects for an improvement in China’s most important markets—Japan and the rest of Asia, Europe and America.
But despite the extraordinary boom in China’s export industries over the past decade, domestic demand has always been a more important contributor to the towering growth rates. Four of Mr Zeng’s “challenges” covered the difficulties in stimulating demand at home, and, in particular in encouraging consumers to consume. He noted that most goods are in oversupply, while demand remains weak. For many goods, in fact, prices continue to fall, although the overall consumer-price index is rising.
Second, Mr Zeng pointed to the prospect of more workers in export-based industries losing their jobs. Third, he said two years of drought have caused hardship in many parts of China. Finally, farmers’ incomes have also been hurt by what Mr Zeng called “structural problems”. Two-thirds of China’s people live in the countryside. But much agriculture is inefficient and uneconomic. Farmers’ cash incomes are about the same as they were five years ago. That is bad enough. But since then taxes have soared, making matters even worse. China’s anticipated accession to the World Trade Organisation and consequent freeing up of farm-product imports will be a further blow.
Looking for a booster
Of the methods China has used in the past to boost exports and demand, one—devaluation of the currency, the yuan—is unlikely, especially if the dollar continues its recent weakening or unless the outlook worsens significantly. But another—massive government spending on housing and infrastructure—will continue. In the seven months ending in July, fixed-asset investment in China increased 18% compared with the same period in 2000. Some Chinese economists are suggesting that the government borrow even more money to keep up this investment splurge. But since the government has also to prop up a banking system made rotten by the cost of dud loans to loss-making state firms, others worry about an unsustainable build-up of public debt.
So the government needs to stimulate private consumption. To this end, it already, earlier this year, gave pay rises to civil servants and workers in state-owned firms. The state’s employees, who make up two-thirds of the urban workforce, may receive another rise soon. At a time of civil-service cuts and state-firm closures, such people are unlikely to embark on a lavish spending-spree. But in the first half of this year, sales of consumer goods rose 10.3% over the same period last year, and the consumer-confidence index, based on surveys of the expectations of city-dwellers, has been crawling up ever since the beginning of last year.
In the longer term, WTO membership should help enhance competition, productivity and growth. The prospect of accession has already played a part in an increase in foreign direct investment in China, which attracts far more foreign capital than any other poor country does. Chinese officials also expect Beijing’s success in winning the right to play host to the 2008 Olympic Games to stimulate industries such as tourism and construction, and to add as much as three-tenths of a percentage point to China’s annual growth rate.
But China needs its breakneck rates of growth to provide jobs to cope with the consequences of its hectic dash to industrialise. There is an estimated surplus labour-force of 150m in the countryside. Last week China announced that, from October, internal migration would be made somewhat easier. It will relax some of the restrictions of its hukou system of residence permits, though it remains fearful of what might happen if controls were lifted altogether. Millions of workers in state-owned factories are also redundant, so it is understandable why a slowdown in a booming sector—manufacturing for export—should spook the politicians. China’s is an economy that needs to run very fast just to avoid a nasty accident.