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Monday October 08, 2001 12:27:51 PM

Market observers offer mixed view of response


(Original publication: Oct. 08, 2001)

As the war on terrorism escalated to new dimensions, Wall Street pros hovered near their television sets yesterday to weigh the impact on the stock markets and the weakened economy.

Most observers said they expected investors would stay calm in response to the bombing attacks on Afghanistan, and some didn't discount the possibility of a patriotic rally when trading resumes on Columbus Day, historically a light trading session. Some said the ultimate success or failure of the campaign to capture or kill Osama bin Laden, the man accused of orchestrating the Sept. 11 attacks, will be played out on Wall Street.

"The markets ultimately will be looking for bin Laden's head on a silver platter,'' said Phil Orlando, chief investment officer for Value Line Asset Management in Manhattan. "Bin laden must die, or at the very least be captured and put before an international tribunal."

Neal Baumann, branch manager for A.G. Edwards & Sons Inc. in White Plains, said he expects investors to remain calm because the U.S. response was expected.

"Most people knew this was coming,'' Baumann said. "(The president) has warned that this could be a long process, and most investors are ready."

In the past two weeks, stocks recovered most of the steep declines suffered after the Sept. 11 attacks. Last week, the Dow Jones industrial average rallied to close at 9,119.77, up 3.08 percent for the week.

Some analysts said they expect the market recovery to hold, unless the terrorism escalates.

"This military action is a reassertion of our standards,'' said Ralph Freydberg, the manager of Gruntal & Co. in Scarsdale. "It will be good for our society and good for the world. The markets will react to that."

Wars also can be good for the economy. The U.S. military buildup during World War II, for example, rejuvenated American industry. But brokerage managers say it's hard to draw historical parallels because the terrorism battle is different than past wars.

"This is unique,'' said Howard Hirsch, senior vice president with Salomon Smith Barney in Mount Kisco. "I don't know whether the investing public will view this as great news or be concerned about it. It's uncharted territory."

Mark Lavi, an investment broker in Wesley Hills, was optimistic that military action would lead to an immediate jump in the stock market and in the long term. He predicted a 200-point leap in the Dow Jones industrial average today, and a 50- to 100-point leap in the Nasdaq composite index.

"There's no more uncertainty about what the U.S. will do," Lavi said. "The market will see that the fiscal policies and monetary policies will be working together to move the economy forward."

But proposed tax cuts could limit the federal government's ability to respond to a world crisis, said Ann Davis, director of the Bureau of Economic Research at Marist College in Poughkeepsie. The effect of yesterday's military action on today's market will depend on how it plays out not just in America, she said, but in other nations as well.

"We have a 24-hour global set of interlocking markets," Davis said. "It won't be clear yet by Monday morning. ... If it's a successful strike … it could be energizing and lead to resumed confidence by consumers."

But a protracted conflict, she said, could destabilize nations around Afghanistan and further weaken the economy, she said.

Terrorist acts will continue in the United States, said Michael Drapkin, a Monsey information technology consultant and instructor at Columbia University. The question is how the business community should respond.

"I don't think anybody expects we've seen the end to all this stuff," Drapkin said. "This is like trying to kill the Hydra. You slice one head off and 10 more come back in its place."

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