The horrific events of 11 September are likely to change the way the City operates
There are already signs that the terrorist attack on the World Trade Center in New York last week has led to a new economic order as well as a changed political climate. In a crowded train on the Underground in London, someone was heard to criticise City traders for thinking only about 'the market' and not the human devastation and cost. A City worker rounded on the speaker. 'What's the market? Do you think it is just numbers? We are the market.'
The global financial community is in shock but has already demonstrated astonishing resilience. More than any other world capital, London is tied to the heart and soul of Manhattan. Everyone in the Square Mile realises they could have been, and still could be, the target. The mutual support evident among usually cut-throat competitors has been a credit to the industry and bodes well for its survival.
In the aftermath of the atrocity, questions abound. Will this tip the US into recession? Of course it will but the US was on the brink already and many fund managers, even if they had the inclination to trade as soon as exchanges open, are content with their defensive portfolios. Will the rest of the world follow? Unfortunately, yes. But where the US has the resources and now the political will to help it rebound, others are not so empowered.
Will there be war? Maybe, but not in the shape we have seen it before. The Bush Administration is keen to demonstrate that business will soon get back to something like normal. Central banks around the world, led by the US Federal Reserve, will pump money into the system and cut interest rates to try to cushion some of the fallout. The various players in the financial industry want to keep the game going and will do whatever is necessary to ensure it does.
However, the rules and structure are bound to change. Clearly, there is going to be reduced appetite for housing significant sections of your business in visible skyscrapers bunched together in city centres. Dispersed locations and the increasing use of electronic media to link them are inevitable.
For many individuals, the trauma has already led to a sharp evaluation of their work/life balance. Within the equity market, some sectors are facing a tough future. Insurance companies will carry the initial burden of cost but the damage is sure to spread to other industries like air travel, hotels and retail.
Some investors rushed immediately to the old safe havens of oil and gold stocks but these have already fallen back as the scenario becomes more complicated. If air travel is severely curtailed and the global economy is in recession, the demand for oil will fall, not rise. Defence stocks have been tipped as a buy, on the assumption that the US will use and supplement its military capability. But there are already signs that this battle will not be fought with tanks or even planes. The use of surveillance and electronic equipment, however, is bound to surge.
War is an economic test but also an opportunity and President George Bush will use this tragedy to rebuild the US economy at home and shed some tiresome responsibilities abroad. So far, there are no signs that either institutional or retail investors in the US are panicking. Perhaps it would be unpatriotic to do so and we can expect a sharp sell-off in coming weeks. These are unique circumstances and the usual calls to buy or sell hardly fit the occasion. This is probably America's darkest hour but, once it stops reeling, who would bet against a rebound?
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