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Murder, Destruction Produce Surging Stock Portfolios!

As US weapons of mass destruction annihilated Baghdad, stocks surged! Oil prices plummet! Grateful shoppers turn out in droves to take advantage of oil-price savings! Wall Street exhuberat, calls for more genocide! Rumsfeld seen feeding at corpse of charred, bloody victim!
World Markets Continue To Rally
Stocks Prices Rise; Oil Prices Decline

By John M. Berry
Washington Post Staff Writer
Saturday, March 22, 2003; Page E01

The world's major stock markets continued their rallies yesterday and oil prices fell sharply as U.S. and British forces secured oil fields in southern Iraq, raising hopes for a global economic rebound among some analysts and policymakers.

Major U.S. stock indexes have gone up more than 11 percent in a week and a half, and those in Europe have risen even more as a major uncertainty -- whether there would be a war rather than a long stalemate -- was ended by the invasion. Over the same few days, the price of the key grade of U.S. crude oil -- West Texas intermediate -- has plummeted more than $10 a barrel to $27.36, a drop of nearly 28 percent.

"With the ongoing U.S. economic expansion looking increasingly shaky of late, these market developments provide some hope that we'll yet see an appreciable second-half acceleration in economic activity," said Peter Hooper, chief economist at Deutsche Bank Securities in New York.

Yesterday the Dow Jones industrial average rose 235.37 points to 8521.97, a 2.84 percent gain. The S&P 500-stock index climbed 20.06 points, or 2.29 percent, to 895.90, while the tech-heavy Nasdaq composite index closed at 1421.84, up 19.07 points or 1.36 percent. All three indexes are now at their highest levels since mid-January. But even with such good news, neither Hooper nor many other economists were prepared to suggest that the United States or the world economy is out of the woods. There remain too many uncertainties, about the progress of the war and about the underlying economic forces at work in different countries, to make forecasts with great confidence.

"Looking ahead, things get very complicated, and depend on imponderables such as the intentions of terrorists and megalomaniacs," Lehman Brothers chief economist Ethan Harris told his firm's clients yesterday.

Even if the war goes well, Harris expects growth to remain weak enough that the Federal Reserve will have to cut short-term interest rates again soon. "While the range of outcomes is wide, the risks are clearly skewed toward sub-par growth" and very low inflation, Harris said.

Numerous other analysts are more confident that growth will pick up. But several also cautioned that a serious terrorist attack in the United States could undo all the economic benefits that may flow from a brief, successful war.

"We see consumer spending weaker in 2003 than in 2002 independent of whether we are successful or unsuccessful in Iraq," said economist Donald H. Straszheim of Straszheim Global Advisors in Santa Monica, Calif. "But the real key we think is whether there is new freelance terrorism in America. . . . Freelancers with just a little bit of creativity could produce a lot of mischief in our economy."

Meanwhile, some of the benefit from higher stock prices and lower oil prices may be offset by increases in longer-term interest rates. When equity values took off on March 12, bond prices began to tumble -- and bond yields, which go up when prices fall, rose sharply. For example, yields on 10-year U.S. Treasury notes, which have a major impact on interest rates on 30-year fixed-rate home mortgages, were up more than half a percentage point over eight trading days.

European countries should also benefit from rising stock prices and falling oil costs, but growth in most of them is likely to remain subdued nevertheless. For instance, Britain-based Oxford Economic Forecasting predicted that growth this year in the dozen nations using the euro as their currency will reach only 1.6 percent, up from 1.2 percent last year. Britain is expected to do better, with 2.6 percent growth compared with 2.2 percent in 2002.

Analysts said the drop in oil prices should lead to lower inflation in Europe and open the door to additional interest rate cuts by the European Central Bank. The bank reduced its key rate target by a quarter-percentage point, to 2.5 percent, earlier this month. Many analysts and politicians repeatedly have criticized the central bank for being reluctant to cut rates more aggressively to counter very slow growth and high unemployment.

Even though Japan imports all of its oil, its economic woes are so severe that analysts said lower oil prices won't help very much. Oxford Economic Forecasting expects growth of only 0.6 percent this year as the country struggles with a general decline in consumer prices and in the prices of assets, such as land and buildings. At the same time, the country's banking system has so many losses on its books that the amount of credit extended continues to shrink.

The recent slow economic growth in the United States has reverberated overseas because it has reduced American demand for foreign-produced goods and services, and that has chilled economic activity abroad. If growth picks up in this country, that could lead to increased purchases of imports and thereby boost other nations' economic activity.

One imponderable, analysts said, is what will happen to the value of the dollar. It fell earlier this year, particularly against the euro, as a result of war worries. That weakening has made U.S. exports slightly cheaper for many foreign buyers, which may increase demand for U.S. goods and services. But as it became clear that the war was about to start, the dollar's value began to rise again, leaving the impact on trade and economic activity very uncertain.

Other Indicators
The New York Stock Exchange composite index rose 114.50, to 4970.94; the American Stock Exchange index rose 1.79, to 825.53; and the Russell 2000 index of smaller-company stocks rose 5.75, to 376.24.

Advancing issues outnumbered declining ones by 9 to 4 on the NYSE, where trading volume rose to 1.81 billion shares, from 1.43 billion on Thursday. On the Nasdaq Stock Market, advancers outnumbered decliners by 2 to 1 and volume totaled 1.84 billion, up from 1.56 billion.

The price of the Treasury's 10-year note fell $8.44 per $1,000 invested, and its yield rose to 4.07 percent, from 3.96 percent on Thursday.

The dollar rose against the Japanese yen and the euro. In late New York trading, a dollar bought 121.51 yen, up from 120.40 late Thursday, and a euro bought $1.0534, down from $1.0603.

Light, sweet crude oil for May delivery settled at $26.91, down $1.21, on the New York Mercantile Exchange.

Gold for current delivery fell to $326.00 a troy ounce, from $332.90 on Thursday, on the New York Mercantile Exchange's Commodity Exchange.

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War Goes Well? 21.Mar.2003 21:30


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