FSO Storm Watch Update "9-1-1 The Day That Changed Everything" 09/14/01


	Storm Watch Update 9-1-1 The Day That Changed Everything by Jim Puplava www.financialsense.com September 14, 2001

Tuesday, September 11^th, 2001 was a day that changed everything. Normally I would begin this week's essay with talk about the most relevant news from the financial markets, the earnings warnings, the economic statistics, and a glimpse at the week ahead. These events have been overshadowed by the sounds of war. President Bush expressed it best as he addressed a grief stricken nation, “You have just seen a glimpse of war in the 21^st century”. America is now at war. This war will be unlike any other war that we have ever fought before. This is a challenge unlike any other challenge an American President has had to face since the 19^th century. This week's terrorist attacks brought war to America’s mainland for the first time in 136 years.

We Face A New Kind of War and A Faceless Enemy
This will be a new kind of war. The enemy will remain faceless. There will be no big battlefields. Rescue scenes carried out by firefighters instead of infantry have replaced the Dunkirk’s horror. There will be no storming of the beaches of Normandy. In 21^st century warfare no large battalions will gather on the battlefield to face each other. Large armies gathered for battle would only become a target for precision-guided missiles that would annihilate them. This is a war that will be fought by stealth as witnessed by its opening battle. It will be a war won by intelligence. It will be fought overtly and covertly and at times, simultaneously. It will be a guerrilla war fought against terrorist cells and the nations who support them. To get a glimpse of what it will be like, you only have to watch the daily news events coming out of the Middle East.

It will be a war directed against civilians as much as military targets. Its objective will be psychological as well as strategic. The enemy will target the will and confidence of the American people. It will be a war that tests our courage, our resolve, and our character. In that regard, they have already lost the first battle.

If there is one lingering effect of this week’s events, it was the rise and display of patriotism displayed in every nook and cranny of America. Stories that inspire ... a Catholic priest ministering the Last Rites to Catholic firemen before they entered the caverns of the collapsed wreckage of the World Trade Towers knowing they may never come back alive, manifested it. It was displayed by a citizen’s drive all night to deliver skin pigment for skin grafts for burn victims at the Pentagon. It was the draping of the flag over a freeway in L.A. and the response of lights and the honking of horns of cars passing by. It was shown in the tears and concerns of a CEO who had just lost 70 percent of his staff who was most concerned about other members of his staff even though he had probably lost his own brother. It was a surge in enlistment at recruiting centers across the country. It was heard in the voice of a college student on radio who just dropped out of school to enlist in the marines. It was visible in the coming together of presidents and politicians from both sides to pray and remember those who had fallen. The caring hand of a senior president squeezing the hand of a younger president, his own son, showed it. That gesture said, "I’m with you and will support you for I have been there before."

I saw it in my own neighborhood as I drove to work this morning. Flags planted on lawns, draped from windows, and hung from garages lined my cull de sac. It didn’t end there. There were flags displayed on both sides of the street as I turned the corner and drove towards the gate. It looked like we were honoring a hero’s homecoming. The enemy may have unwittingly awakened a sleeping giant and may he fear its resolve.

A nation has been awakened from its slumber. Life, as we now know it, changed on Tuesday, September 11^th. It will never be the same. The security measures taken will change the landscape of America. We have always viewed these kinds of events from afar. This week, we viewed them up close. Many airports around the country are still closed. The markets are closed on this Friday. They haven’t been closed this long since 1933. Security at our borders will create delays and slow traffic. Curbside check-in at airports is a thing of the past. Carrier battle groups are stationed outside U.S. cities. Congress has approved the use of force. The President will call 50,000 reservists to duty. The war has just begun.

Life will change in many small ways for all of us. I had planned on sailing on the ocean this weekend. But all boats entering or leaving our port will be checked and searched by police. I‘ll remain in the harbor instead; one less boat security forces will have to check. Last night I went for my evening walk to collect my thoughts and get a sense of calm. The roar of jet engines from Miramar that flew overhead interrupted that time of peace and quiet. I heard those same sounds as my head rested upon a pillow trying to sleep. I lay awake instead thinking about what all of this portends. Life in America will change. It must. But like crisis before, we will get through it and a different America will emerge. It will be a more somber America. The era of peace, prosperity and a time of self-indulgence have ended. They will be replaced by harder times and the grim reality of what is before us.

Hard times do many things. It tests character even as it builds it. It is a time when the measure of a man and that of a nation is tested. It forces us to think of others instead of ourselves. It forces us too reflect inward and examine ourselves. Love of God and country can redirect us and steel our resolve. It can unite a nation instead of divide it. These are all good things.

The Markets Ahead
The stock market was closed this week, so there isn’t much to report on. There are only questions as to what the market will do when it reopens on Monday. What will happen on Monday will depend on confidence and the fragile state of American and foreign investors. It is not only about America. Foreigners own a piece of us. At the moment, the dollar has been falling against major currencies, especially the Yen and the Euro. This may be the first sign that foreign money is leaving our markets. Confidence in the dollar is based on the strength of our financial markets and economy and the state of our military. The military is ready, but has been downsized and has an enormous task ahead. It must protect the country and wage war at the same time. Strength in our financial system has been dealt a blow by the attack on the epicenter of our financial system. There will be obvious casualties such as the airline, travel and the insurance industries. They have been the hardest hit. For the airlines, it will be the worst year of losses in decades. The insurance industry was also be hit due to the huge sum of settlement payments that will have to paid as a result of property damage and the loss of life. But there will be winners as well. Energy, defense stocks, raw material companies, and precious metals will do well as investors will certainly become more defensive.

Confidence in the dollar is based on the strength of our economy, our financial system and the state of readiness of our military. Our military is still strong but it has been downsized. It faces an enormous challenge in front of it. It must now defend the homeland and at the same time wage war. Our financial system remains fragile. The market has remained weak and in loss territory for the second year. All major markets have experienced double-digit losses. The financial system has also been dealt a severe blow by a terrorist strike at its epicenter. As far as the economy is concerned, that is in the hands of the American consumer. Suffice to say the American consumer is also in a fragile state. It is hard to imagine that the events of this week have not had an impact on the spending plans of most Americans. The terrorist attack aimed at American confidence may have delivered the final blow to that confidence. Only time will tell. Watch for signs of it in the months ahead as retailers report their sales. Discounters should still do well, but department stores I believe will be a casualty. The fourth quarter will become the most important quarter of the year. It accounts for 40 percent of all retail sales. Everyone will be watching to see what happens during the holiday season. It will also be an important quarter for capital spending. Wall Street is counting on a pickup coming from business to replace the slack from consumers.

It is hard to conceive of the U.S. economy now avoiding a recession. There is too much debt, too many layoffs and too much tragedy. Although there is always the possibility of a miracle. If it occurs, it will need to be a big one. Everyone is counting on the Fed to bail us out. Forecasters are already predicting a drop in the Fed funds rate by 0.75 percent by the end of October. The Fed is flooding the markets with money. They have injected $81 billion into the banking system just for this weekend. The graph in the M-3 figures tells the story. It doesn’t include what happened this week. Over $100 billion has been injected into the system and we haven’t even gotten to Monday.

There may be bouts of panic selling when the markets reopen. Investors who understand little about the financial markets may first sell and ask questions later. But the Fed stands ready to inject liquidity. The Fed will be enjoined by other central banks around the world. All eyes will be on our financial markets to see if they hold. Everyone -- from analysts, day traders, foreign investors to those who perpetrated this week’s crime -- will be watching. Will the markets hold or will they crumble like the Trade Towers after the blows of rising unemployment, declining earnings, collapsing consumer confidence, and now tragedy? The world waits. We will watch, we will pray, and then we will know.

May God bless this great nation and keep her strong. ~ JP

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