The US stock market opened on time Monday morning, the result of a Herculean effort to put in place the necessary infrastructure to light the lights, power the computers, wire the phones and shuttle tens of thousands of people to the New York Stock Exchange floor and its environs.
The Federal Reserve cut interest rates by 50 basis points as expected, ratifying the huge addition of reserves to the financial system last week with a lower federal funds rate. The Bank of Canada, European Central Bank, Swiss National Bank and Swedish Central Bank all followed suit with a 50 basis point cut in their benchmark lending rates.
US stocks, bonds and the dollar all fell at the outset.
Life goes on, even as the impact of the tragedy lingers. Traders and investors clearly eschewed a patriotic statement in favor of a bet on the economy's future. (For the record, I did buy a basket of stocks that tracks the Dow Jones Industrial Average, known as diamonds, at the opening.) The reaction in the US Treasury market, where rates tumbled as much as 60 basis points last week as the attack on the World Trade Center was viewed as the final blow to an economy already on the ropes, was surprisingly negative. It was even more surprising to see bond and note prices sink further with the Dow Jones Industrial Average off 7.5 percent.
Bond investors are eyeing the huge fiscal spending effort, only in its infancy, and deciding that the economy won't stay down for the count, that the surplus and bond buybacks are history.
It didn't take long for the Treasury to validate those suspicions, announcing mid-afternoon that it would cancel its Sept. 20 and Sept. 27 buyback operations.
Last week Congress unanimously passed a US$40 billion emergency spending bill. At least half of the money will be available for relief and anti-terrorism efforts in the current fiscal year, which ends on Sept. 30. The other half will be part of next year's budget.
"The patience for waiting out the slow recovery has gone by the wayside," says Jim Glassman, senior US economist at J.P. Morgan Chase. "They're going to gun it. The `V' is back." Congress is considering legislation to help the airlines, for whom the loss of business is a threat to solvency. In authorizing the president to use military force in retaliation for the worst terrorist attack in US history, Congress has opened the door to increased defense spending as well.
All this will boost economic activity in the short run, even as it allocates vital resources away from more efficient uses and productive endeavors. The increased spending as a result of the destruction wrought by the terrorists is akin to the gerbil running furiously on the wheel in its cage. He's moving fast but getting nowhere.
As I wrote last week, it's important to distinguish between housing starts and the stock of new homes. The first will increase from the rebuilding effort (in this case it will be commercial real estate more so than residential). The latter won't. It's the difference between an increase in gross domestic product and a decline in net domestic product.
All this will come at the expense of higher prices. With 30 million square feet of prime Manhattan office space or damaged -- about a tenth of the city's office properties -- prices for existing space will rise. If the 650 tenants needing to find temporary or permanent space were to find space in Manhattan, it would push the city's vacancy rate to a record low of 4.3 percent, according to a real estate data provider. While it's not evident in price action, there should be more demand for technology products and services than there was a week ago. After all, next to Silicon Valley Wall Street probably runs a close second when it comes to tech toys. "Wall Street probably has the highest concentration of IT infrastructure in the world," says Henry Willmore, senior US economist at Barclay's Capital Group. "It will all have to be replaced. The inventories will disappear quickly.
NO RECIPROCITY: Taipei has called for cross-strait group travel to resume fully, but Beijing is only allowing people from its Fujian Province to travel to Matsu, the MAC said The Mainland Affairs Council (MAC) yesterday criticized an announcement by the Chinese Ministry of Culture and Tourism that it would lift a travel ban to Taiwan only for residents of China’s Fujian Province, saying that the policy does not meet the principles of reciprocity and openness. Chinese Deputy Minister of Culture and Tourism Rao Quan (饒權) yesterday morning told a delegation of Chinese Nationalist Party (KMT) lawmakers in a meeting in Beijing that the ministry would first allow Fujian residents to visit Lienchiang County (Matsu), adding that they would be able to travel to Taiwan proper directly once express ferry
FAST RELEASE: The council lauded the developer for completing model testing in only four days and releasing a commercial version for use by academia and industry The National Science and Technology Council (NSTC) yesterday released the latest artificial intelligence (AI) language model in traditional Chinese embedded with Taiwanese cultural values. The council launched the Trustworthy AI Dialogue Engine (TAIDE) program in April last year to develop and train traditional Chinese-language models based on LLaMA, the open-source AI language model released by Meta. The program aims to tackle the information bias that is often present in international large-scale language models and take Taiwanese culture and values into consideration, it said. Llama 3-TAIDE-LX-8B-Chat-Alpha1, released yesterday, is the latest large language model in traditional Chinese. It was trained based on Meta’s Llama-3-8B
STUMPED: KMT and TPP lawmakers approved a resolution to suspend the rate hike, which the government said was unavoidable in view of rising global energy costs The Ministry of Economic Affairs yesterday said it has a mandate to raise electricity prices as planned after the legislature passed a non-binding resolution along partisan lines to freeze rates. Chinese Nationalist Party (KMT) lawmakers proposed the resolution to suspend the price hike, which passed by a 59-50 vote. The Taiwan People’s Party (TPP) voted with the KMT. Legislative Speaker Han Kuo-yu (韓國瑜) of the KMT said the resolution is a mandate for the “immediate suspension of electricity price hikes” and for the Executive Yuan to review its energy policy and propose supplementary measures. A government-organized electricity price evaluation board in March
NOVEL METHODS: The PLA has adopted new approaches and recently conducted three combat readiness drills at night which included aircraft and ships, an official said Taiwan is monitoring China’s People’s Liberation Army (PLA) exercises for changes in their size or pattern as the nation prepares for president-elect William Lai’s (賴清德) inauguration on May 20, National Security Bureau (NSB) Director-General Tsai Ming-yen (蔡明彥) said yesterday. Tsai made the comment at a meeting of the Legislative Yuan’s Foreign Affairs and National Defense Committee, in response to Democratic Progressive Party (DPP) Legislator Wang Ting-yu’s (王定宇) questions. China continues to employ a carrot-and-stick approach, in which it applies pressure with “gray zone” tactics, while attempting to entice Taiwanese with perks, Tsai said. These actions aim to help Beijing look like it has