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Strategies & Market Trends : Stock Attack II - A Complete Analysis -- Ignore unavailable to you. Want to Upgrade?

To: Paul Shread who wrote (19318)	9/19/2001 12:18:31 PM
From: stockman_scott	Read Replies (1) \| Respond to of 52237

Where Panicky Investors' True Self-Interest Lies... By: David Pauly (Commentary. David Pauly is a columnist for Bloomberg News. His opinions are his own.) Wed, 19 Sep 2001, 9:36am EDT (Bloomberg) -- It's no coincidence that Adam Smith's classic proclamation of economic freedom, ``The Wealth of Nations,'' was published in 1776, the same year the U.S. declared itself an independent nation. A free society can't exist without a free economy. Smith, the 18th century economist and philosopher, said that in a free economy, each individual and company acts in his or its own self-interest and thereby produces the common good. Many Americans this week thought they were pursuing their self-interest by unloading stocks -- and even U.S. government bonds, the safest investment in the world. They thought they were doing the right thing -- protecting their own net worth, or the assets entrusted to them as money managers. Unfortunately, they didn't understand where their true self-interest lay. People who unloaded airline stocks Monday, for instance, may actually have acted against their best interests. The curtailment of commercial flights following terrorist attacks on the U.S. will add misery to an industry already weakened by a slowing economy. Airline executives yesterday asked Congress for $24 billion in aid. But say you had told your broker to sell your Continental Airlines Inc. shares at the market price Monday. The stock opened at $19, down 52 percent from the last trade a week earlier. You lost half the value your Continental investment no matter what you did. Stay Put You might just as well have kept the stock and bet on its comeback. Continental closed Monday at $20.05 and yesterday at $17.72. Airline stocks like AMR Corp. and UAL Corp. have risen from their Monday opening. Does anybody doubt the U.S. government will pump money into an industry so vital to the economy? Consider those investors who yesterday sold Treasury bonds because they feared that government support for airlines and other reconstruction aid would lead to inflation and a glut of Treasury borrowings. Inflation when the economy is at zero? Too many Treasuries? Check with the people who bought War Bonds during World War II. By hunkering down, people do just what the terrorists who destroyed the World Trade Center in New York and part of the Pentagon in Washington hoped they would: Capitulate, economically and emotionally. We're Free Instead, we should glory in our free economy and our free nation. We should buy stocks and bonds, or at least hang onto the ones we have. We should go to Wal-Mart and load up, pumping money into the economy. We can best beat the enemy by getting back to normal. Take an airplane somewhere. Go to a ball game. If you're a CEO, consider building that $1 billion plant after all -- and hiring back some of the workers you fired. Spend your tax rebate. Take advantage of low interest rates. The Federal Reserve now has cut short-term rates by half this year. Buy a car. Buy a house. This isn't to encourage foolish spending by individuals or companies. Terrorism will have economic effects far beyond airlines. Insurance companies will pay claims on trade center damage of perhaps $30 billion, analysts estimate. TV networks lost millions in advertising revenue by running uninterrupted coverage of the tragedy. While investment firms are earning brokerage commissions again, businesses like mergers are still at a standstill. Airlines have to eliminate jobs to coincide with reduced flight schedules and stave off bankruptcy. With 15 percent of its sales tied to the production of commercial airplanes, Honeywell International Inc. yesterday said it would cut about 4,000 more jobs than previously planned, hoping to save $500 million. People out of work have to watch their finances. But the $10.2 trillion U.S. economy overall can absorb the blow and start growing again. That will be especially true if we all remember that by making our economy stronger, we make ourselves freer still. bloomberg.com