Blind panic in the markets

Biggest one day fall in London

Julia Finch, City editor Wednesday September 12, 2001 The Guardian

Investment experts were last night struggling to come to terms with the ultimate impact of yesterday's attacks which turned the world's financial hub into a virtual war zone. As the FTSE 100 recorded its biggest-ever one-day points fall and its worst plunge in percentage terms, 6%, since Black Monday in 1987, there were dire warnings that the world's worst terrorist atrocity could throw the global economy into a full-scale recession.

The markets had started the day in fairly buoyant mood, rallying after overnight recoveries in New York. Just before the first plane slammed into the twin towers the FTSE was ahead by 65 points. The biggest plunge in prices came after the third hijacked plane exploded into the Pentagon building and investors started to dump shares. By the close nearly 3bn shares had changed hands, even though the US was out of the market, as investors, unable to draw on experience of any similar event, went into a blind panic.

The gold price climbed from $271 to $290 an ounce and the Swiss franc was a major gainer on the currency markets as investors searched for safety.

Nearly £70bn was wiped off the value of the FTSE, where the biggest casualties were British Airways, the Hilton Group and airports operator BAA. Those three companies alone saw £2.4bn wiped off their market valuations.

The only winners were defence contractor BAE Systems and oil companies, as the price of Brent crude leaped by $3.50 on speculation that Middle Eastern terrorists were the most likely to be responsible for the attacks and the US would launch swift retaliatory action.

Soaring oil prices in 1999 are widely blamed as the trigger for the world economy slowing late last year and yesterday's renewed surge immediately heightened fears of a new push towards a global recession.

Simon Rubinsohn, chief economist at Gerrard said: "We have seen what higher oil prices can do in the last couple of years. If that trend is continued it would be bad news. It would push up prices and depress growth."

He predicted the federal reserve would move quickly to cut interest rates if there were signs that oil prices were increasing - even if that meant stoking inflation. "These are the things that could unfold from this atrocity," he warned.

Adrian Jarvis, head of strategy at Morley Fund Management said: "If the US was on the brink of recession, and may have avoided it before, now they will not avoid it." He drew a parallel with the Gulf War, which he said tipped the US into recession a decade ago.

Edward Bonham Carter, managing director of Jupiter Unit Trust Managers, said: "One has to be careful about making snap judgments at such a time. But this is potentially a deflationary shock to the system in the widest sense of the word. Capitalism relies on the free movement of people, goods and money. If an attempt is made to hit this then it could hit confidence, which is the underlying support for all markets. If we have a deflationary shock and the oil price is strong, then it could turn really nasty."

In Washington, the US federal reserve confirmed it was open and operating and would provide liquidity as necessary.

There were also fears that the huge plunge in share prices could deal a hammer blow to consumer confidence and spending, which so far have proved remarkably resilient to the manufacturing recession.

Some dealers voiced criticism that the stock exchange had not halted trading. The powerful City regulator, the Financial Services Authority, was in constant contact. But although the exchange evacuated its landmark London tower, it remained open. A spokesman said: "We made it clear to key players that it was up to them if they wanted to operate." Some trading floors did close as investment bankers in Canary Wharf were evacuated.

http://www.guardian.co.uk/wtccrash/story/0,1300,550510,00.html

-- Martin Thompson (mthom1927@aol.com), September 11, 2001

Answers

If anybody's holding gold call options, now is the time to run stops under them--and let the profits roll.

-- JackW (jpayne@webtv.net), September 12, 2001.