Recap of Saturday, October 13

$urviving the Terror

David Asman:  Wiping out terrorists may take years according to President Bush.  The question is, is Wall Street prepared for the long haul?  Dennis, has the market already factored in another crisis?

Dennis Kneale, Managing Editor:  The market is slowly making its way back up to where it was before but I think people are still skittish.  We need to see an outcome to all this.  People would like to see Usama's head on a stick. 

Bob Lenzner, National Editor:  Another attack would be traumatic on the market and make it fall. 

David Asman:  Friday the markets went down after the anthrax scare.  Will it make it back up Jerry?

Jerry Flint, Columnist:  There is no second strike.  That's all talk and caution.  The market will go up and down like it did during the Cold War.  We're in a recession period so expect markets to go down.

David Asman:  Jim, investors might have been spooked by this anthrax scare but might it come back again?

Jim Michaels, Editorial Vice President:  Short-term predictions on this market are worthless.  During the 90's the markets were experiencing bright futures filled with euphoria.  Now we have tremendous uncertainty.  We have a recession, a war.  It's inevitable that price earnings ratios are going to come down. 

David Asman:  There are some industries that do well during war times because they produce products for the war effort.

Jerry Flint:  Yes, but we're not producing a lot for this.  This is the kind of war that uses up 10, 000 bombs.  We're not losing B-17's in raids.

David Asman:  During war people work harder to produce but spending is usually down.  How will that factor into the economy?

Dennis Kneale:  Tech stocks led us down and the market won't make it up until tech stocks lead us out. 

Bob Lenzner:  I think the blue-chip telephone companies like Verizon (VZ), Southwestern Bell (DSW) and Sprint (PCS) will be in a position to buy those Tellco's that I was talking about last week that are going to go bankrupt. 

Jim Michaels:  I want to go back to something Jerry said about we're producing a lot for this war.  The defense stocks have been experiencing a huge rally.  If I were a speculator, I would look at selling those short. 

Jerry Flint:  Productivity usually rises during the start of a boom.  You're producing more and you're hiring workers.  You don't get productivity in a downturn because you aren't producing as much and you haven't fired enough.

Jim Michaels:  I'm not sure I agree with Dennis about people not spending.  I think people will go out to dinner, buy a new dress and buy a new car.  There's a way of making yourself feel better.

David Asman:  And entertainment's not doing too well either, right?

Dennis Kneale:  No.  I've seen my retirement money plunge so I've put off buying that vacation by the beach.  That would've been a nice entertaining vacation.

Jim Michaels:  The reason why entertainment hasn't been doing well is because people are glued to their televisions watching this unfolding drama.  I think entertainment will come back.  It always does during wars.

Bob Lenzner:  People are really worried about losing their jobs.  A blue chip law firm said no bonuses this year.  Layoffs are happening at Credit Suisse Fleet Boston, Goldman Sachs and those will continue.

Are Banks Profiting Too Much?

David Asman:  Banks may be profiteering from low interest rates.  Interest rates are so low right now banks are saving a lot of money when they borrow, but are they passing those savings on to us when we borrow?  The fed has lowered the inter bank rate a full two points within the past six months.  But the rates you and I get for let's say a 30 year fixed mortgage have only dropped a half a percent.    

Quentin Hardy:  Banks are definitely profiteering from those low interest rates but they've also got all those Tellcom debts that are going to come back.  They're going to have to kill those off.  They're setting up reserves right now to do that. 

Bob Lenzner:  The Fed wants them to buy the money at 2.5% and lend it at 5.5% because they might have some assets that turn sour. 

Quentin Hardy:  Let's set aside how unethical this whole thing is and how we might make a buck off it.  Ultimately, they're going to hurt their best customer, the consumer. 

Bob Lenzner:  Banks need to be able to lend the money to make money on the profit.  I don't think there are a lot of people borrowing money right now. 

David Asman:  So, which stocks do you like?

Bob Lenzner:  I like regional banks that don't have the TellCo. loans.  Citigroup (C), Commerce Bancshares (CBSH), Fleet (FBF), M&T Bank (MTB), Washington Mutual (WM) are some.  Next week, we'll learn their earnings.  They might not be so good and there might be a buying opportunity.

Quentin Hardy:  They're squeezing the borrowers in the consumer mass base and that will haunt them. 

David Asman:  But Quentin, I still don't hear a good argument for building up the base reserve for the losses that are to come. 

Quentin Hardy:  Well, Bob is saying there's a crystal ball where the Fed knows exactly how much these losses are and that's just not the case.  This is blind profiteering and they're just going to hurt the consumer. 

Bob Lenzner:  They don't have a crystal ball.  They're just saying the banks should be allowed to make this spread.  And hopefully, they'll make up for the loan losses their experiencing.