Client Communication Briefings

September 13, 2001

    In the wake of the devastating events of this week, returning to any degree of normalcy seems like a distant possibility. However, to remain trapped in the trauma gives credence to the senseless act of terrorism that has so dramatically gripped our nation. It is important now that we show our adversaries, wherever they might be, that America can and will recover and become stronger, just as we have done in the face of other historically tragic events.

    This act struck at the heart of American capitalism. By destroying buildings, misguided zealots believed that they were destroying our financial stability. I cannot deny that our financial centers were adversely impacted and the resulting close of our stock exchanges plummeted the world’s economic attitude into a state of disarray. On Tuesday most European markets were down four to six percent on the day, after having opened with a positive bias (those markets did recover half their losses the next day). We should brace ourselves for a reactionary sell-off the first couple days our markets reopen. But history shows us that this type of decline is a temporary response to an equally temporary loss of control.

    Markets, like humans, do not respond favorably to uncertainty and fear.    These emotions often elicit others such as denial or the desire to flee, to separate from the scene until things normalize a bit. I anticipate we will see such emotions in the days ahead played out in the market. However, history provides evidence that such catastrophic events often create a temporary downturn in the market, they are often followed by a stronger than anticipated rebound. For example, in the days immediately following the first bombing of the World Trade Center in February 1993, the market experienced a slight decline, however within two weeks it was up over 3.5%.

    When Iraq invaded Kuwait in 1990, the markets sold off, dropping nearly 8.5% within the first month. However, the day we responded with the bombing that started the Gulf War, the markets soared, making up all of the earlier losses plus gaining nearly 20% in the next 18 months.

    At this point in time it is impossible to predict how long it will take the markets to recover from this trauma. However, there are a few things for which we can be certain. Our government will respond to this attack in some manner, putting an end to uncertainty. Our markets will reopen despite the destruction of its symbolic epicenter. While the terrorists attacked our financial center, the means of production – factories, labs, farms, stores, etc. are still in place. Most important, we Americans, the most productive workers on the planet are back to work, producing the goods and services that make up the high standard of living we enjoy.

    In terms of actions you can take at this point, I can only advise that you resist the temptation to abandon the market thereby giving the terrorists what they wanted. I will continue to assess your allocation based on your goals and objectives, not on market conditions in response to this tragic event.

    If you would like to discuss your account in more detail or if you have specific concerns regarding the potential impacts on your investments, please do not hesitate to call. We stand ready to provide you with a continued level of service, which has not been in any way interrupted by the loss of the World Trade Center. We are happy and relieved to report that the firms we use for custody and clearing of your accounts have not been directly affected by this tragedy – we expect business as usual after the markets open.

    The financial community mourns the loss of our counterparts who were victims in this merciless attack, but recognizes that helping return the markets to stability as quickly as possible minimizes the damage the murderers sought to enact.

Sincerely,

Michael Haubrich, CFP