The Investment Climate Since 9/11

We all remember exactly where we were on that fateful morning. Beautiful Tuesday morning in New York, September 11th began like any other autumn day: kids back in school, businesses trying to finish off the recession of 2001.

Me, I was in London visiting my British accounts. Professional portfolio managers investing in the American stock market and hoping that the tech wreck of late 2000 rolling into 2001 was over. I was taking a nap in my hotel room suffering from a terrible headcold and jet lag. It's 1:30 in the afternoon, London time, and my wife Cindy calls me and sadly tells me to turn on the television. I saw the second plane go in like the rest of the world watched.

The other terrible news, personal in nature, was my mother who was terminally ill took a turn for the worse and also died that day. I did manage to get a phone connection back to the US and say goodbye to my dear mother. She was a hospice nurse in her working years and many thought her services were needed at the pearly gates as an unexpected 3,000 people were arriving without notice.

Six days later, I finally arrived back in the US, home for her funeral. Monday, September 17th was my mother's funeral and the first day that the stock market re-opened.As Americans were pleading that we need to support our markets and "buy" American stocks, the professionals knew the market was going to tank...and big time.

It did. The Dow was down over 1000 points that week. Many wondered why? Aren't we suppose to support our markets and don't let these terrorist bastards win? On the patriotic front-- yes, on the valuation of equities front--no. We knew that most American companies were going to reduce forward earnings estimates, thus re-setting their underlying values.All of a sudden, hotels, restaurants and retailers found their rooms empty, seats empty and their shelves full.No one was interested in buying anything. We were all riveted to our televisions and grieving in our own way.

New York hedge funds that I knew well felt they were making blood money. Following their investment credo to maximize profits for their clients, they were shorting stocks, and as those stocks fell, they profited. Many took their share of their profits and donated them to various support organizations helping 9/11 families. It was the least they could do.

Since 9/11 we have seen some high profile corporate scandals like Enron, Worldcom, Tyco and Adelphia. They soured the American investor as we saw the worst of greed and fraud. As one seasoned portfolio manager always told me" the problem with fruad is we always find out when it's too late" Simple, but true. So Congress and the Bush Administration took the necessary actions to re-build investor confidence.

Sarbanes-Oxley, known as Sarbox, became law and CEO's, CFO's and Boards of Directors were put on the hot seat to ratify their company's income statements and balance sheets. They would even have to assume personal liability and had to sign off before a company's quarterly numbers were released. A good start and a long needed reform.

Markets have been a bit volatile since 9/11 and 2004 was the only real good performance year. But ladies and gentlemen, get ready as the next few years could be exciting and full of rewarding returns.

Many US companies are flush with cash and are putting their money where their mouths are: buying back their own shares in the open market. Always a positive sign. It feels like the new Federal Reserve Chairman, Mr. Bernacke is finished raising interest rates. The ensuing 18 months after a Fed cycle of raising rates, then stopping, is always quite bullish.

The initial public offering (IPO) markets are slow and we are losing some good, young American growth companies to the London Stock Exchange as they are less onerous than our rules, but that's folly for another article.Their could be a developing shortage of American stocks. With corporate share buybacks, a lessening of the IPO markets, and the Fed hopefully finished raising rates, we could see a nice sustained rally these next 18 months.

Here's toasting our American spirit and a toast to my dearly departed mother.