'Falling skies' are more than peripheral to economic issues

Friday 16th November 2001

Anyone who thought international economies and investment markets settled down in the two months since the terrorist attacks of September 11 (US time) should reassess their position after the aircrash over New York on Tuesday.

Things relaxed after a few hours when it seemed the crash was an accident, rather than another terrorist act. Markets went into a short-term spin as an initial reaction.

US authorities moved quickly in their newfound alert system, closing down key access routes into New York: the famed bridges, tunnels, airports and freeways.

Americans are naturally twitchy, having, apart from Pearl Harbour, had no outside attack on territory since 1812.

Full trading on Wall Street in the opening hours of November 12 (their time) would undoubtedly have seen a plunge in the main US indices, before emergence of the facts.

Such movements could be dismissed as irrational panic but they occur regularly and have to be factored into assessments of market trends.

Markets are fragile institutions, irrespective of their rationality or irrationality. They feed on the desire of operators not to be caught on surges or dives.

There was, unfortunately, an economic and financial flow from the human tragedies associated with the American Airlines' Airbus crash.

The airlines lost a plane, 255 people aboard lost their lives and there was death and property destruction on the ground in the usually quiet suburbs of New York's Queens borough.

It is neither brutal nor cynical to note the economic impact through property and life insurance claims, possible litigation against the airline and indirect effects in the added damage done to the reputation of air travel safety.

Airlines relate their safety records to those of other travel modes, particularly road transport.

That is valid but air carriers have to battle emotional perceptions as opposed to statistics.

New Zealand, for example, absorbs several hundred road deaths a year, but they are spread out in twos and threes throughout each 12 months and get short paragraphs in the press.

An aircrash gets worldwide headlines, a matter beyond airlines' control, much as they bemoan the fact.

These matters are more than peripheral to economic, financial and investment issues.

Recent market movements suggested September 11 had been consigned to history but Tuesday proved the existence of an underlying even primordial, fear of potential chaos.

New Zealand investment markets are not immune from international trends.

The "on-tap" brokers' spokesperson regularly quoted in the daily press - possibly to give some credence to the writers' unwillingness to analyse - are, on balance, always optimistic.

They have to be, because deals must be done to earn income. More income is earned on rises than falls.

Much has been made recently of how markets bounced back after perception of past crises.

There has been some validity in that approach, if one accepted the "nothing new under the sun" philosophy.

The problem is that we may be seeing something new under the sun, particularly in the US, where there seems bewilderment about "how could this happen to us?"

Answers to that question might be obvious, depending on one's attitude to global politics but nobody can deny the US' position as the powerhouse of the world economy, and consequently, investment markets.

The final question, relevant to all markets including New Zealand's, is the ability of New York to come again.

New Yorkers are tough people. Those who come from outside soon learn to be tough.

The toughness has recently been shown as a facade. Like it or not, all markets must rely on New York and the general US capacity to rebound is the key to the world economy's immediate future. New Zealand is part of that scene.

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