What happens when the markets reopen?--Research Report forWednesday ,
 Following is a report that I thought would be appropriate for the times. If=
 there is anything I can do for you in terms of research reports, or anythi=
ng else,  please feel free to contact me at 713-853-2407, or via e-mail.

Thank You,

Hank Emery
___________________________________________________________________________=
________________________________

Extra!  What happens when the markets reopen?  As leaders work to prevent a=
 political and psychological crisis from turning into a financial one, hist=
ory offers the only real guide on what to expect when the smoke clears.  By=
 Jon D. Markman =20

 If you go way back, it was 139 years ago next week that Gen. Robert E. Lee=
 and his Confederate troops engaged the Union Army at Antietam, Md., in a b=
attle that turned out to be the single bloodiest day in U.S. history. More =
than 26,000 soldiers from both sides were killed or wounded on that Sept. 1=
7, 1862 -- a figure that will probably be eclipsed by the carnage of Sept. =
11, 2001.  That attack, the first major thrust north by the surprisingly po=
werful Southern rebels, led President Abraham Lincoln to issue his Emancipa=
tion Proclamation * and open a new chapter in American civil and business l=
ife, a new era of liberty for people and markets.  Likewise have most major=
 events in U.S. economic history led to consequences unimagined by key acto=
rs at the time. And so it will probably be with this attack. Sources across=
 the country told me Tuesday that they believe that the unexpected conseque=
nce over the next few days and months could be a stock-market rally led fir=
st by promises by the Federal Reserve to provide all necessary funds to sta=
ggered banks and brokerages and next by vast deficit spending by Congress t=
o shore up the country?s defenses.  Michael Stutzer, professor of finance a=
t the University of Iowa, points out that Tuesday?s events were a civil and=
 emotional crisis, not a financial crisis. An emotional crisis, he said, ca=
n lead to a financial crisis only if mishandled by government authorities. =
*A financial crisis is what happened in Japan, where people learned that no=
t only were all the stocks they held were overvalued but that their governm=
ent had a hand in leading their banks to bankruptcy,* he said. *Nothing lik=
e that is happening here. But what does have to happen now is that the Fed =
must act to prevent a ?contagion of fear? from spreading and leading people=
 to withdraw money and stop buying things. That would lead to a recession a=
nd thus to a real financial emergency.* =20

A few predictions What are the likely immediate consequences when the U.S. =
markets reopen later this week or next?  Anthony Kolton, chief executive of=
 Markethistory.com in Chicago, has researched the past 100 years of events =
that led the United States into war. He forecasts with confidence that the =
major indexes will open with losses of 5%, then quickly recover by the end =
of the following trading week to remain unchanged at pre-catastrophe levels=
. *If there is a big opening plunge, I think you?ll see a total recovery ov=
er the next five days,* he said from Manhattan.   Kolton, who was en route =
to a meeting at the World Trade Center when the buildings were hit, said he=
 also believes that the United States does not face a financial crisis just=
 because the buildings that were destroyed stood at the center of U.S. fina=
ncial life. The reason: After the 1993 bombing of the buildings, he says, m=
ost companies spent millions to build disaster recovery systems and back up=
 all their accounting far off site. *We?re going to recover,* he said.  Ste=
ve Milner, managing partner of the worldwide financial planning firm Squar =
Milner in Newport Beach, Calif., said he is most worried about the consumer=
, not business. Based on conversations with clients, he believes that peopl=
e will react with fear -- and fearful people rein in their spending on ever=
ything from vacations to home remodeling and stocks. That will be a real, n=
ot an imagined, economic event, he believes, that could badly damage a U.S.=
 economy that is already sputtering.  Milner also notes that many major fin=
ancial institutions that he does business with were already inclined to be =
sellers of the recent decline, not buyers. But that could turn around. *Peo=
ple who were inclined to sell might be more inclined to sell now * but I do=
ubt it,* he said. *There is a cynical part of me that says financial profes=
sionals will realize that life goes on and will decide to be buyers.*  Vic =
Niederhoffer, a longtime trader for financier George Soros and his own acco=
unts, says that he also believes that a big down market will find buyers. *=
I really hate to sound mercenary, but I have received many messages from tr=
aders who say that they think this will be a terrific opportunity to buy. W=
hether you look at the John F. Kennedy assassination, the Eisenhower heart =
attack, the Warren G. Harding ptomaine poisoning or airline crashes, usuall=
y disasters provide the greatest times of opportunity,* he said.  Niederhof=
fer, a student of economic history, said that in the past disasters have le=
d to a tremendous boost for local and national economies as capital infrast=
ructure gets rebuilt with the most modern equipment. Those two buildings al=
one will require massive outlays of funds * possibly provided by the Fed or=
 Congress from the U.S. Treasury * to build miles of new fiber-optic lines,=
 buy the latest data-transmission switches, and possibly tens of thousands =
of new computers and software.  *Everyone will chip in to help and this wil=
l turn out to be a transitory event,* Niederhoffer said. *It may cause a te=
mporary slowdown in the U.S. economy and a big disruption in the supply cha=
in, but there is no evidence that declines in products or earnings or comme=
rce have anything to do with stock prices anyway. In fact, there is no evid=
ence to suggest that stocks do any worse in recessions than they do in bett=
er times.*  Mr. P, a hedge fund trader that I have quoted in past columns, =
said he likewise believes that the first day?s move could set a bottom to t=
he market. *This is very bad for bonds, very good for stocks,* he said. *Th=
is act of war, with the magnitude of the loss of life, will lead Congress t=
o engage in deficit spending like the world has never seen -- selling billi=
ons of dollars of new government bonds to cope both with the reconstruction=
 of New York and the build-up of the American military.*=20

 Always, history offers perspective So what if these scenarios don?t pan ou=
t? The global financial system was already in bad shape before Tuesday and =
sellers of stocks were swamping buyers with growing intensity. If worried i=
nvestors decide to put all their personal funds in a lockbox and the Fed an=
d Congress stand aside, you could look to the last major financial crises f=
or the floor in the market.   The October 1987 crash left the Nasdaq at 323=
 at its nadir, a level reached again four years later in October 1990 at th=
e moment of greatest panic over oil supplies during the Gulf War against Ir=
aq. If the markets had risen from there in a straight line that approximate=
d the historic 6% return of stocks, that index would be at around 690 today=
 instead of 1,680.   That could be a real floor, but it?s unlikely to trans=
pire if authorities do their job and thus avoid the fate that befell Gen. G=
eorge McClellan two months after Antietam. President Lincoln replaced him w=
ith Ambrose E. Burnside after complaining about McClellan?s failure to pres=
s his advantage after victory. His comment: *If you don?t want to use the A=
rmy, I should like to borrow it for awhile.* The Bush administration likewi=
se has a vast set of financial weapons at its disposal to battle this assau=
lt, and the public will replace it if used unwisely and too slowly. =20

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