Special Update #5

Introduction

News continues to unfold each day, both about the tragedy in America, and about what our response will be. Most of the news about the tragedy continues to be bad, as is the news on the economy. Fortunately, there has been some good news on the military response front. While most analysts expected it would be several weeks before the US takes military action, it now looks like some actions could begin any day, as discussed below. The markets have stabilized the last 3 days, but it is impossible to know if more declines will follow.

News You Probably Already Know

1. The death toll (missing persons) in NYC has now topped 6,300 including over 300 fire-fighters and police. 30,000 New Yorkers are reported to be out of work due to the attack on the World Trade Center. This number does not include the 6,000+ New Yorkers that died in that tragedy. The death toll at the Pentagon is approaching 200.

2. The FBI now believes as many as 12 commercial airliners were targets of the terrorists; it is not known why only 4 were actually hijacked. The FBI released photos of the 19 suspected terrorists thought to have been on the doomed aircraft.

3. The FBI believes some of the hijackers were actually in the cockpits, posing as airline pilots and were allowed to ride in the jump seat with the pilots. If so, this could explain why the passengers may not have attempted to overtake the hijackers -- they may not have known.

4. The government has now said there could be as many as 400 terrorists in the US, up from 200 reported last week. It is obvious now that they don't know how many are in the US.

5. Evidence found in the terrorists cars and/or homes indicate they intended to use crop dusting planes, presumably to disperse some type of biological or other toxic materials by air.

6. Agents of Osama bin Laden and the Al Qeada tried to purchase mothballed Boeing 727s, presumably for training suicide pilots.

7. New intelligence indicates the terrorists planned to bomb the recent G-7 meeting in Italy, but the plan was foiled. Details are still very sketchy.

8. The Taliban is freaking out. At first they warned of a holy war if we attacked; then they said they didn't know where bin Laden was; then they said they had ordered him to leave the country. Their story changes daily, indicating they are increasingly nervous. Then on Sept. 26, Jesse Jackson claimed that the Taliban contacted him directly and asked him to bring a peace delegation to Kabul to negotiate some kind of deal. Then on Sept. 27, the Taliban reportedly said, no, we didn't invite him, but he is welcome to come. Jesse, you're a piece of work! Let's hope he goes there permanently!!

9. US Consumer Confidence Index plunged in September, down from 114 in August to 97.6 in the latest report released on Sept. 25. Economists predict a recession. (More details below.)

News You May Not Have Heard

1. Greenspan & Rubin Recommend $100 Billion Fiscal Stimulus Package. In a private session with the Senate Finance Committee, that included former Treasury Secretary Robert Rubin, Greenspan said a stimulus package amounting to 1% of the nation's gross domestic product, or up to $100 billion, would be a proper benchmark, according to senators' and aides who attended the meeting.

Rubin and Greenspan intended that figure to include actions already taken by Congress since the Sept. 11 terrorist attacks, which include a $40 billion emergency spending plan and $15 billion in airline aid. Some senators had suggested the $100 billion was in addition to those measures already taken, but a source speaking on condition of anonymity said that was not the case.

Lawmakers have not agreed on what form this new stimulus should take. Some want more tax cuts, or at least accelerating the Bush tax cuts targeted at future years. Others want to suspend payroll taxes temporarily. Still others want Congress to simply appropriate another $45 billion or so in new spending and dole it out to industries that are suffering as a direct result of the tragedy of 911. As this is written, no new legislation has been enacted on this matter, but I fully expect action of some type of package within the next 2 weeks or so. [See story in the "Special Articles" links below.]

2. Survey of Leading Economists -- GDP Will Fall By 0.6% in 3Q & 4Q, But Recover in 2002. The Wall Street Journal conducted a new survey of the 26 leading economists it regularly polls. While there was a broad range of estimates, the average forecast was a drop of 0.6% in GDP in the 3Q and 4Q. On average, the group of economists believes the economy will recover by the beginning of 2002. The average forecast is for growth of 1½% in 1Q and 2½% in the 2Q of 2002. All of these forecasts seem optimistic to me.

As noted above, consumer confidence plunged in September. It went almost without notice that the Index of Leading Economic Indicators turned down in August (before the crisis), after rising for the 3 consecutive prior months. While everyone has an opinion about how bad the recession will be, I think it is still too early to make any credible predictions. I will update you as soon as I receive the October issue of The Bank Credit Analyst.

3. Popular Mechanics Magazine Warns of "E-Bombs." The story warns of high-tech, low-cost electromagnetic weapons that can be put together by terrorist groups for a mere $400 that could hurl US cities and towns back 200 years in the blink of an eye. Writer Jim Wilson (whoever he is) explains in simple - and horrific - detail how terrorists could produce a weapon that could shut down a US city by destroying all of its electronics, its electricity supply, automobiles, computers, phone lines and just about all the modern technological devices and systems we now take for granted -- without, however, killing people. . . I have no idea how seriously to take this story. I have not seen anyone from the FBI or the Bush administration comment on this. If true, this is very alarming. [See story in the "Special Articles" links below.]

4. US Likely Planning to Seize Afghanistan's Largest Air Base at Bagram. Before I even begin to go down this path, I must emphasize that speculation is rampant about what our military plans are in Afghanistan and elsewhere. So I hesitate to be one of the speculators. However, it would seem almost certain that the US will want to occupy Afghanistan's only "all weather" (open year-round) airport which is conveniently located north of Kabul. [See "US already on the move" story in the "Special Articles" links below.]

4. Stratfor.com Offers In-depth Analysis of US Military Options. Our friends at Stratfor.com have been presenting a multi-part analysis (called "War Plans") on the likely military operations to be conducted by the US in the weeks and months ahead. I have not seen analysis of this detail available anywhere else that is accessible by the public. Links to the first 4 parts of the analysis are included below. More will be forthcoming.

5. Stratfor.com Believes More Terrorist Attacks Are Likely. Dr. Friedman and his colleagues believe that the terrorist organizations responsible for the 911 tragedy knew that the US response would be to greatly heighten security, tighten the borders and make it very hard for new terrorists to get in the country. Thus, they suspect that other cells which are already in the US have other missions of violence that may have been planned for a long time as well. Be sure to read "War Plan -- Part 3" in the Stratfor links below.

6. US Orders Evacuation of Consulate on Border Between India & Pakistan. The US just ordered a complete evacuation of the consulate in Lahore, Pakistan. When the diplomats leave the scene, it is usually a sign that diplomacy is giving way to military action. The embassy in Islamabad has also been cut to a skeleton crew. But why Lahore? That is a city on the border with India. Does the US think Pakistan and India are about to come to blows? Strange.

7. President Bush Takes Colin Powell to the Woodshed. Following Bush's address to the nation last week, wherein he promised strong military action against terrorists and the countries that harbor them, Colin Powell contradicted the President on some of the Sunday talking head programs. Essentially, he said it is not at all certain that we will take military action against anyone or any country. The next day, Bush publicly corrected the Secretary of State, and he has been towing the party line since then. [See stories in the "Special Articles" links below.]

8. Bush Has Highest Approval Ratings in History of Gallup Poll. Bush's approval rating soared to 90% this week, the highest level ever recorded by Gallup. The previous highest rating was that of Bush's father, George H.W. Bush, in 1991 during the Gulf War. I have been both impressed and surprised at how effective Bush has been in dealing with this crisis. If you notice, Bush is far more effective and convincing when he strays from his prepared remarks and speaks from his heart. Even some die-hard liberals (see "Posner Recants . . ." below) are jumping on his bandwagon. [See stories in the "Special Articles" links below.]

9. NBC's "Saturday Night Live" Says No More Bush Jokes -- How Noble of Them! SNL execs said this week that they will refrain from any more Bush jokes, at least this week. If you have seen any of these skits, you know that they portray Bush as an absolute moron. He has definitely proven otherwise! Jay Leno and David Letterman have backed-off as well.

10. Over $230 Million Worth of Gold & Silver Bullion Lies Underneath WTC Building. Gold and silver bars used to back the futures contracts traded on the NY Mercantile Exchange are buried under the rubble of one of the lesser damaged buildings at the World Trade Center. This bullion will certainly be recovered. Beneath the Twin Towers rubble also lie countless safe deposit boxes of banks and brokers in the buildings. Thousands of stock and bond certificates are also buried in the rubble, along with many wills and family trust documents. These may never be found.

In closing, let me wish you a pleasant weekend. Last Sunday, I happened to check the news just as the NYC Prayer Service was beginning. While I had other plans for the afternoon, I could not take my eyes off of it. Debi and I watched for three hours as, one after another, people prayed for America, sang patriotic songs and worshiped God.

GOD BLESS AMERICA!!

Sincerely,