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  [PATH]  TheTimesOnline.com 3:18 AM, Tuesday, September 18, 2001   

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Trader John Panin, center, puts his hand to his face as he pauses on the New York Stock Exchange trading floor near the end of the trading session on Monday. (Associated Press)

Dow dives as world worries

Local experts say stock market will recover soon.

BY KIM CHIEVRUE Times Business Writer
Posted Tuesday, September 18, 2001

The world watched as the opening bell rang and stock trading began Monday morning. The immediate dip in the Dow Jones Industrial Average surprised no one.

"Nothing would stop the big hit, simply because transportation stocks were going to get hammered," said Robert Frick, senior editor of Kiplinger's Personal Finance magazine.

He said lack of transportation profits were pulling the market down. "Air transportation is a key indicator of economic health. Northwest UAL, American, were all down 40 percent. Some are saying they will cut their schedules by 75 to 80 percent. Just off the top, that will clip 25 percent off their profits. And I'm sure they'll have to make inducements to get people to fly again, which is going to further cut into profits."

Frick said the market can be blown out of proportion by fear or greed.

"People tend to make money selling on greed and buying on fear. Our greed phase ended in spring 2000, when the Internet bubble burst. But if you had bought in 1987 right after the market crashed, you would have made money by year end.

"No one wants to be quoted saying it, but this is a buying opportunity. I think people are assuming we'll be on a wartime footing as far as spending goes, and that's going to be healthy for the market. "

However, the average investor can make better use of the current economic realities by checking into refinancing possibilities, Frick said. "I suspect the demand for refinancing mortgages will be down, and all you have to do is lock it in. If you were waiting to refinance, go back and check (the available rates). You might be surprised this week."

He said people waiting for the available rate to drop a full two points below their current mortgage rate are following an outdated rule. "That was true when you used to have to pay a lot to refinance, but not anymore."

P. Raghavenda Rau, professor of finance and economics at Purdue University in Lafayette, said he was not surprised when the market dipped below 9,000 Monday for the first time in more than two years.

"After any kind of disaster of this magnitude -- there is usually a dip at the opening," Rau said. "There's a whole bunch of panic selling at first, and then it comes back up."

However, this disaster comes at a particularly bad time, he said. "Last Monday's numbers showed consumer confidence at the lowest level for the year. The market seems to be down, but was that due to the World Trade Center attacks or because the economy was already heading into a downturn? Maybe this was the additional straw on the camel's back."

Rau said the terrorist attacks could be compared, in terms of property loss, to a large earthquake. "When there was the big earthquake in L.A., we absorbed that in a matter of days. The difference here is, the economy was not booming when it happened."

Rau agreed that fear is affecting the market. "We don't know how we can stop anything like this from happening again. If it was clear that our leaders were doing something, that adds a lot to consumer confidence."

He suggested individual investors hold on to their stocks until the situation stabilizes. "The only case when it might be good to sell is if you expect the economy to do worse over the next six months, and you want to get out now. But then if you are even slightly wrong, you have locked in all your losses."

"I think the market has done quite well in light of world events in the last week," said Don Nelson, first vice president of Merrill Lynch in Merrillville. "When you look at what's happened throughout history in reaction to these lows, they come back about 12 percent in four months. Even after Pearl Harbor, a year later, the market was up, and we were still in the throes of World War II."

Investors should take a long view, Nelson said. "If your portfolio was structured on a risk-reward relationship to your liking going into this crisis, it would be a mistake to react to short-term events."

Nelson advised waiting to refinance mortgages. "The indications are (the prime lending rate) may go down a little further," he said.

Investors, he said, "should be reassured. Our economy is still the strongest in the world."

Kathleen Bradshaw, vice president of the investment division of Citizens Financial Services in Munster, said local investors did not seem to be panicking. "We have a lot of investors in the markets, and we're not getting flooded with calls from people wanting to sell," she said. Bradshaw said the events of last week have been tough on the market, but help is arriving from a number of directions.

"There will be a lot of bonds issued to help rebuild New York City," she said. "The airlines will have problems, but Congress says it will work on doing something to help them. Even in other countries, our allies will rally to support us, and companies will be able to buy back their own stocks to provide stability.

"The Fed cutting rates is also going to help."

She suggested investors remain positive. "We have to have faith in our country, and our leaders, and the people running companies in America. In the long term, good things will come out of this. Just sit tight and keep the faith."

Kim Chievrue can be reached at (219) 462-5151 ext. 346 or kimc@howpubs.com



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