Marketplace: News Archives

Thursday, October 12, 2000
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It's Thursday, October 12, 2000. I'm David Brancaccio.

The Dow fell 379 points today, that's three and two thirds percent. More on that in a moment, but first we need to address the grim developments in the Middle East that contributed to that stock market drop. An apparent suicide bombing of a U.S. Navy ship at a port in Yemen has left at least five sailors dead and 12 missing. U.S. officials believe a small boat laden with explosives was detonated next to a destroyer, the U.S.S. Cole. President Clinton today said today if this is confirmed as terrorism it is a quote "despicable and cowardly" act.

Clinton: We will find out who is responsible and hold them accountable. If their intention was to deter us from our mission of promoting peace and security in the Middle East, they will fail, utterly. I have directed the Department of Defense, the FBI, and the State Department, to send officials to Yemen to begin the investigation.

The incident in Yemen came hours after relations between Israelis and Palestinians devolved in disturbing and tragic ways. Today, two Israeli soldiers were killed by an angry mob after being taken into police custody in the Palestinian-controlled town of Ramallah. Israel's prime minister called it a "lynching" that could no go unanswered. Israel helicopter gunships fired missiles at targets near Palestinian leader Yasser Arafat's headquarters. Palestinian officials called the helicopter attacks an act of war. The spiral of violence in recent weeks has left nearly a hundred people dead, mainly Palestinians and Isreali Arabs. Cameron Barr is with the Christian Science Monitor in Jerusalem.

Barr: Today's strikes are an expression of the frustration that has built up particularly in the Israeli defense forces and I think more broadly in Israeli society. It doesn't look that way from the outside, because the body count indicates that many many more Palestinians are dying than Israelis. But Israelis feel like they are under siege and they feel like they've used a lot of restraint and now they are striking back and that will give some people a sense of satisfaction.

Barr says there's a sense of disappointment mixed with outrage among Palestinians that the peace process has not produced the benefits promised. And there is the irony that it is the peace process itself that has led to the Palestinians becoming increasingly armed.

Barr: They've come to be better armed through the Oslo peace process, because the Palestinians now have their own police forces, their own security forces and these folks of course all have weapons. I spoke to a member of Mr. Arafat's Hatta organization today, I asked him abou the scene at the police station where the two Israelis were killed and he said you have to understand that Israelis have not just been killing civillians over the past two weeks, they've also killed some 35 members of these security forces. These are people who have been openning fire on Israeli troups and who have, most of them, been killed by snipers. And with so many casualities on their side, they feel very little inclination to restrain an angry mob from going in and killing two Israelis.

The Christian Science Monitor's Cameron Barr in Tel Aviv. The U.N. Secretary General urged all the parties in the conflict to stop and think about what they are doing and what kind of tomorrow they want for their children. "Violence breeds violence," Kofi Annan said. Businesses with interests in the Middle East watched today's events with trepidation ... as Marketplace's John Dimsdale reports.

Dimsdale: Before today, nearly eight years of peace talks had generated enough business confidence to deliver plenty of outside investment to the Middle East. Government and private money has poured into infrastructure, technology and telecommunications projects ... tying the historically unsettled region more closely to the global economy. U.S. experts today are hopeful these business commitments will help limit the violence. Howard University business professor Masoud Kavoossi is the author of "Globalization of Business and the Middle East." Given the region's economic potential, he advises multinational companies not to panic.

Kavoossi: I would sit tight. I would say, well there's uncertainties in many regions. But it will go away because it is in the long term interests of the west, as well as the countries in the region. They can't afford any more...after fifty years of hostilities .... to go back to that vicious cycle.

Dimsdale: Israel, especially, has been benefitting from the global technology boom. Pelican Security is an Israeli firm that makes Internet security software for businesses. From the company's U.S. headquarters outside of Washington, President Peter Privateer says he hopes the people of the Middle East have been too busy making money to maintain the hatreds of the past.

Privateer: I do think the stakes are certainly higher for everyone now and I think that will bring something to bear on settling the situation. A lot of people have prospered because of this and I don't think anyone wants to see that prosperity suffer.

Dimsdale: And Dan Finberg at the Stellar division of the Israeli firm Elisra ... which makes satellite communications products ... doesn't think the new violence will undermine the high-tech fundamentals in Israel.

Finberg: The growth in business with Israel has a lot to do with the ingenuity and innovation coming out of the universities there.

Dimsdale: However, Finberg worries that a lengthy period of hostilities could chase away some of the fledgling hi=tech companies trying to take root in Middle Eastern soil. In Washington, I'm John Dimsdale for Marketplace.

When events like this flare in the world's biggest oil producing region, market players worry about supply at a time when stockpiles are already lower than is comfortable. This drove up the price of oil, which gained two dollars and 81 cents to close at 36-06 a barrel. Bob Moon has been following this throughout the day.

Moon: Not since Iraq invaded Kuwait ten years ago have traders and analysts seen anything like today's oil buying frenzy:

Beranek: "We did see what could be called panic buying in the initial reaction, but it did cool off and give back some of that increase later on around midday."

Moon: Petroleum Finance Company's George Beranek says the oil market was news-driven throughout the day. And in New York, oil trader Frank Aburto says it was all because of the fear of the unknown

Aburto: "We don't know whether the Arab countries or the producing countries will abstain from shipping, or reduce the amount of oil to the Western world at this point."

Moon: The resulting sharp spike in oil futures has now wiped out almost all the price moderation since President Clinton decided to dip into America's strategic reserves last month. But the Brattle Group's Philip Verleger sees a bright side, even if oil prices have shot above $36 a barrel

Verleger: "Had the government not released oil from the Strategic Petroleum Reserve, I think we'd be talking about a $43 or $44 price today."

Moon: So what's ahead? Your guess is probably as good as any oil expert. When I posed the question to one analyst today, he reminded me he was an energy specialist, not a political analyst. And the Brattle Group's Verleger, a former Treasury Department energy adviser, agrees it's all speculation

Verleger: "It's very hard to predict the behavior of a commodity market like oil when you have the possibility of a war developing. If everything quiets down in the Middle East, I think you'll see prices back down in the low 30s, and probably back down in the high 20s within a couple months. If tensions continue to heighten, it's quite possible that Iran or Iraq will decide to cut oil production and send prices spiraling upward."

Moon: So far, there's no sign of that. In fact, Iran's leading OPEC official said today the cartel has no plans to suspend exports. But he said there could be pressure to act if attacks on Palestinians worsen. I'm Bob Moon for Marketplace.

While higher oil prices helped out the share prices of some oil companies today with Exxon-Mobile closing up a half percent, the damage elsewhere in the Dow Jones Industrial average was widespread and striking. As I mentioned, the Dow closed down 379 points three and two thirds percent. That comes in at Number Five on the list of worst point drops for the Dow. If it had fallen 35 more points, the key index would have closed below 10-thousand. Some of the pessimism was free-floating. Some of it was specific, in the case of America's Number One home improvement retailer, Home Depot, which warned that its profits for the rest of the year would fall. From New York Marketplace's Jessica Smith has details.

Smith: Home Depot says lower prices for lumber cut into revenues. And also warned higher gas prices were adding to distribution costs, further chipping away at profits. The companyĘs stock fell nearly thirty percent on the news, and dragged down other retail stocks as well. Sam Ginzburg, a senior managing director at NY brokerage Gruntal and Company, describes the scene earlier today on the trading floor.

Ginzburg: Walmart acting horrifically, those are big names, they are down and they are bringing the Dow down with them. And selling is begetting selling. A tremendous amount of money is just beingą(pauses)ąis just disappearing.

Smith: The announcement from Home Depot reignited fears about a BROADER slowdown in consumer spending. Although Christopher Low, chief economist at First Tennessee Capital Markets, says investors may not have reacted so dramatically if they hadn't already been unnerved by the recent plunge in hi-tech stocks.

Lowe: But this is a separate issue. And what we are seeing is not just the new economy companies struggling but the best of the old economy companies are struggling as well.

Smith: Struggling is of course relative. Lowe still calls Home Depot's lower earnings growth estimate remarkable. But its NOT what investors are used to. And this reality check of lower earnings is happening as other black clouds gather over Wall Street. Ginzburg says, there's a tremendous amount of negativism out there.

Ginzburg: Anything that could be negative the bears are going to spin it to Hey this is horrible and that's exactly what is happening right now.

Smith: Bank stocks also plummeted, on fears of another interest rate hike, which is never good for banks' business. Stocks that did WELL today were those oil-related companies, GOLD companies, and drug stocks, a traditional investor haven when the going gets rough. IN NY, I'm Jessica Smith for Marketplace.

The Nasdaq Composite started the day up, but weighed down by the general pessimism, it ended down 93 points or three percent, to 3074, the lowest close of the year so far. More details when we do the numbers.