When the Markets Reopen

After an extraordinary week in which the American stock markets have been closed, at some point --most likely Monday -- things will get underway again. But many of the facilities, most importantly the New York Stock Exchange, will be operating with limited resources, which will put a big strain on things if trading gets heavy. The Motley Fool preaches one word for what will be a trying time for all market participants: patience.

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By Bill Mann (TMF Otter)
September 14, 2001

"The general who wins the battle makes many calculations in his temple before the battle is fought. The general who loses makes but few calculations beforehand." -- Sun Tzu

Thankfully, the New York Stock Exchange is taking great care to make sure things are ready when the stock market reopens. It has pushed the date back to Monday at the earliest, which will allow the markets, market makers, and investors to gather additional information before they act. That's what a robust market is built on: information.

The bond markets have already opened, and there have been some practical and functional difficulties. From a practical matter, no one really knows what the fallout for certain companies, industries, or commodities will be, so even with perfect flow of data, variables are quite unsettled. The information flow, unfortunately, has also not been perfect, with data feeds that have been unreliable. Still, the bond market is crucial for many companies' short-term liquidity, so it is open, warts and all.

As important as the stock market seems, it does not have much effect at all on the ability of companies to operate, so the NYSE is rightfully taking its time. This has nothing to do with resolve and everything to do with functionality. Currently the telecommunications and electricity service to the NYSE is quite spotty.

Verizon (NYSE: VZ), the local phone company, lost a significant portion of its lower Manhattan network when the World Trade Center collapsed. Verizon officials believe they will be able to get service to the exchange close to normal by Monday, but the stark reality is that some of the network redundancy Verizon relied upon during peak times is gone. Communications systems could be overwhelmed, particularly on the first day of trading.

A second problem will come from the brokerages and market makers. Dozens of companies such as Lehman Brothers (NYSE: LEH), Barclays, and Merrill Lynch (NYSE: MER) have Manhattan office space that was not destroyed, but is just as unusable. They will need to set up in temporary office space, but there is little chance that they will have their infrastructure in place in time for trading to resume. Another logistical problem will be getting people to the Financial District, as transportation to and around lower Manhattan is still dicey.

These things will get ironed out eventually. In the meantime, investors need to practice something that is all too rare in the financial markets: patience. Information and communications will be unreliable, while trade executions will more than likely be nowhere near the speed we have come to expect. This is going to be reality for a while, and those who speculate and require things like instant trade fulfillment are going to be at a magnified disadvantage for the near future.

There are hundreds of emails circulating right now exhorting Americans to show our support by buying stock when the market opens, to deny the terrorists the satisfaction of seeing our financial institutions thrown into a downward spiral. This is a wonderful, wonderful notion.

However -- and I know some people are going to be extraordinarily unhappy at me for saying this -- I urge you not to do anything rash with your money. Emotion is never our best friend in investing, and Monday will be no different in that regard. The U.S. government is doing its part to provide liquidity: the Fed lent $70 billion dollars to banks and dealers on Wednesday, and provided billions more in swap agreements with European central banks to meet their dollar obligation. Individual investors will not be able to keep the market propped up with their purchases if the big boys are pulling out, which they might just do.

Our best interests will be served if individual investors keep a level head. Buying a stock because it is dropping like a stone as a show of support is admirable, but in the markets self-sacrifice is rarely rewarded. The best course of action with our investments is the same as it always was: Trade only when we believe we are getting a great company at a good price. America's markets and companies will surmount this attack, but they will need time.

Finally, just before press time we learned that the SEC had agreed to temporarily relax its rules to allow companies and market makers to buy stock to avert what may be a short-term panic. The SEC has also hinted that short-sale transactions, in which the investor expects that the price of a share will drop, will also be limited in some fashion.

These moves by the SEC will not only give companies the flexibility they need in extraordinary times to keep the stock market liquid, but also -- and much more importantly -- they are a strong message to investors that we have some support from regulators to maintain the value of our securities in a time when so many other things are in question.

Be well, and keep your head about you. This, too, will pass.

Bill Mann does not own any of the securities mentioned in this article. The Motley Fool is investors writing for investors.

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