Shared Values – October 2001

October 22, 2001

Dow Jones Average: 9,377
S&P 500 Index: 1,090


Shared Values


Flags are flying across America as an expression of unity, support, and shared values. In spite of political, religious, economic, and ethnic differences, there is much that unites Americans with each other and most of humankind. At the most fundamental level people share a desire for life, a devotion to family, and a compassion for others. One of the most chilling aspects of the September 11th massacre was the realization that the terrorists do not share these basic human aspirations. According to Bin Laden many young Arab men look forward to death as much as Americans look forward to life. The terrorists appear to be loners, distant or estranged from immediate family. And rather than showing compassion for others, they devoted years of their lives to the meticulous planning of mass death, terror, and suffering. We have no common basis for dealing with such people. They do not even fit the stereotype of terrorists who make threats or hold hostages in exchange for some demand being met. There was no warning, no specific threats made, no negotiation offered.

In a display of unprecedented unity, almost all countries in the world have joined in the fight against terrorism. While most people believe that counter attacks will alienate more people in the Muslim countries, the power of the terrorist organizations must be diminished. Such groups have already acquired and are unleashing biological weapons such as Anthrax. We can only be thankful that they have apparently not acquired a nuclear device. After September 11th few have any doubt that they would kill millions with a bomb if they could. The proliferation of nuclear weapons is the single greatest threat facing the world and should be addressed immediately by the large coalition of countries fighting terrorism.

The war on terrorism will be exceedingly difficult because it is not defined by national boundaries. Some of those who would do us harm are located in our own country, others are in Europe, and many live in countries allied with us in the Middle East. The Egyptian Islamic Jihad is one of America’s largest and most determined adversaries. Most of the suicide pilots, including the infamous Mohammed Atta, came from Egypt, Saudi Arabia, and our other allies in the Gulf Region. We can scarcely attack these countries to root out such terrorists. The attack on Afghanistan follows the nationalistic definition that military strategists are comfortable with, but leaves most of the terrorist network untouched.

While trying to protect our country from further devastating attacks, U.S. policy makers must develop a strategy to deal with the changes that are inevitable in the Middle East. The region is currently dominated by repressive military dictatorships and monarchies that appease the religious extremists and terrorists in a bargain to hold onto power. Moderate Arabs who wish for democracy and liberalization of society have been pushed aside. Choosing any side in such a situation will undoubtedly create enemies for our country. If the U.S. intends to remain involved in Mideast politics it should support the moderates who share our principles and values.


Current Strategy

The attack on September 11th further weakened an economy that was already sinking. Corporate profits for the quarter ended September 30th 2001 were awful and are likely to get much worse before they get better. In an effort to prevent losses most companies are either laying people off or cutting back on hours worked. While such action may appear necessary for each individual company it has a cumulative, negative effect on the economy that further hurts the prospects for all companies.

Once the economic snowball starts going downhill it is difficult to stop. Faced with record levels of personal debt, uncertain job prospects, a falling stock market, and minimal savings, most American consumers have decided that it is time to retrench. Ten interest rate cuts by the Federal Reserve Board have not produced much growth in consumer demand. The very low interest rates are a double edged sword. While helping those who need to borrow, the rate cuts have reduced the income of many Americans who live partially on interest income. We do not see any near term catalyst that is likely to spark a resurgence of consumer spending.

Some investors have decided that this is the time to buy, while others are taking a more guarded position. We count ourselves in the latter group. The financial markets are being driven by speculation and emotion rather than hard headed investment analysis. The buyers are speculating on a strong economic recovery starting by early 2002. This prediction is not supported by larger economic factors or specific company guidance. In our opinion stock prices are staying at stubbornly high levels given current business trends. Preserving capital for more attractive opportunities in the future is still our prime objective.

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