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PAUL KASRIEL, chief
economist at Northern Trust Co., is on the phone from his Chicago office and
I'm thinking . . . lisle stockings.
That's right. Lisle
stockings.
Phrases, words,
memories get stuck in one's head at times such as these.
When I was growing up
and my father talked about the war, the last big one, he would talk about
women in Moose Jaw knitting lisle stockings, which I think to him was a soft,
gentle image of the home front. (My mother, having craved silk hose, had a
different view.)
So when Kasriel says,
``This war, or whatever this is we are about to engage in, is expected to
have a negative impact on consumer spending,'' I think, lisle stockings.
My father wouldn't
talk about the harder realities, about being Over There, the Italian
Campaign.
My brother not long
ago found among my father's papers a story of the Battle of Ortona, featuring
a guy named Smudge Smith and someone else called just Fixer and another
character who gets ``blown out on his first time out.''
He writes about slit
trenches and funk holes and someone whose throat gets badly cut from shell
fire. This last boy wraps his own neck in a towel and says, seeing as how
it's all over for him, he'd like a last cigarette. The narrator, my father,
observes no hissing sound could be heard through the towel, so the wound was
surely superficial and there was more life ahead for this boy.
Well, I wish I could
write it as well as he did.
Here in the business
community we don't often have to write about human tragedy. And now comes the
terrible imperative to connect the World Trade Center disaster to world
bourses and the global economy, and whether we, the lucky ones, are going to
come out of it okay.
Everyone's looking for
points of reference. Yesterday, MacDougall, MacDougall & MacTier Inc.
released a research report examining stock- market reaction to two world
events: the Cuban Missile Crisis and the assassination of President John F.
Kennedy. I know, it sounds ghoulish.
``When President
Kennedy was killed, the markets fell about 3 per cent, while at the head of
the Cuban Missile Crisis, stocks declined 5 to 6 per cent. . . . In both
cases, the markets recovered their lost ground within a day and maintained
positive momentum during the ensuing week and month.''
Paul Kasriel has made
observations about war and markets in the past. When the bombs fell on Kosovo
two years ago, Alan Abelson interviewed him for his Barron's column. Kasriel
made the point that in 1942, blue-chip stocks posted a 20.3 per cent return,
which grew to 25.4 per cent in the three years following. In 1950 (Korea),
big-cap stocks had a return of 31.7 per cent.
``For the most part,''
Kasriel told Abelson, ``U.S. stock markets have traded up in the early years
of major wars fought on foreign territories.''
Yesterday, Kasriel
considered what has changed in a mere week. Last Friday he was staring at the
same stats that had so many believing that America was tumbling into
recession - unemployment up; growth slumping toward zero; consumer confidence
down.
``The administration
was very concerned about the economy last Friday when the unemployment rate
jumped,'' he said. ``But the Democrats wanted to play this to their benefit.
Well, now they're both worried about the economy.''
Seven days later. A
new picture.
``The Bush
administration asked Congress for a $20 billion (U.S.)supplemental
appropriation and Congress said we'll give you 40, and that's just for the
supplemental,'' says Kasriel. ``In some sense, the social security lockbox
has been opened.''
Kasriel predicts more
moves. Possibilities: another tax cut, even a payroll tax cut. A near
certainty: another interest rate cut. ``If I see my neighbour's going back to
work because the Pentagon is ordering a lot of stuff, and the Federal Reserve
has cut the interest-rate on my home equity loan by three-quarters of a per
cent . . . those are some pretty powerful things that make me feel better.''
Of course, he feels
lousy, like everyone.
And then there's this:
``If you look at the Iraqi invasion of Kuwait, consumer confidence just fell
off a cliff,'' he says.
Consumer confidence in
the United States, as noted in this paper yesterday, was already in the tank,
having fallen sharply before the World Trade Center disaster.
So now the big
balancing act exists between the U.S. government, which has given every
indication thus far that it will spend whatever it takes to keep the economy
moving forward, and consumers, who may well want to keep crawling into a
hole.
Which means it all
comes down to people like you and me.
Me, I'm going to buy
something utterly unnecessary and utterly luxurious this weekend, and think
of Smudge Smith and the guys. Doing my bit. For the effort.
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