Google+
Close
The Detainee Factor
A not so far-fetched stock-market forecasting tool.


Text  


Larry Kudlow

The Dow Jones average rose 424 points in the first two days of trading this week, a number that is not too far from the surprise announcement that 352 people were arrested or detained in the probe of the September 11 terrorist attacks in New York and Washington.

Advertisement
Coincidence? I think not. According to Attorney General John Ashcroft, another 392 people are being sought for questioning. Does that mean the stock index will soon move up another 400 points to above 9000?

When you think about it, the “detainee factor” is not that far-fetched a stock-market forecasting tool. Ashcroft has been a determined, capable, efficient, steady-at-the-helm, no-frills, no-theatrics performer in the early days of the war against terrorism. He’s a confidence builder, a strong player in President Bush’s war cabinet. And as an unintended bonus, the attorney general is becoming a good stock-market predictor. The next three or four hundred terrorist-linked detainees will likely add a similar point count to the Dow’s upward recovery.

As an indicator of U.S. domestic security, the detainee chart may actually be today’s most important stock-market indicator. So important, that I’m tempted to put a multiple on it, and then interpolate that multiple into a year-ahead market forecast.

This is, after all, a war. And in war the enemy always responds. We have already learned that more planes were to be hijacked. Luckily, the crop-dusting, chemical-warfare plot was uncovered. But there’s no telling what these fanatical criminals have in mind for the future.

Framing it in these terms, any law-enforcement actions taken by the federal government to identify, capture, and detain terrorists and their fellow travelers is a welcome relief to families and businesses. Conversely, there will be no wealth creation if stock exchanges, banks, utilities, waterworks, businesses, factories, or hospitals are prevented from going about their daily chores. Literally, domestic terrorism prevents finance, business, commerce, and trade from functioning. Terrorism terminates our most basic liberties and freedoms.

Thankfully for the American economy, Ashcroft is not an army of one.

The Federal Aviation Administration has ordered airports and airlines to redo criminal checks and re-examine job histories of baggage handlers, food service workers, and others who have access to secure areas including airplanes, ramps, and tarmacs. This is good. Very good.

The Air Line Pilots Association, a 67,000-member union, wants cockpit crews to be permitted to carry handguns to foil hijackers. Good for them. They are more than happy to undertake rigorous training to prepare for this. And we have already started placing armed federal marshals on a number of flights. Another very good thing.

The Coast Guard is now checking passenger identities on inbound ships, working with the FBI, immigration officials, the U.S. Customs Service, and other law-enforcement agencies to check names against existing databases. Perfect.

President Bush acted to freeze the assets of 27 terrorist individuals and related organizations, and he will use the full weight of U.S. authority to enlist foreign banks in the effort. We will now follow the financial DNA wherever it leads to choke off terrorist funding. This too is very good. It will pay dividends in terms of greater family and business security in America.

Still hot on the trail, Attorney General Ashcroft told Congress that “Terrorism is a clear and present danger to Americans today.” He is asking for tougher immigration laws, new authority for a federal takeover of airport security, taps on cell phones, and tracers on computer correspondence. These are all the things necessary to enhance domestic security against terrorism. None of it need violate constitutional principles. These measures are aimed at the war against terrorism.

Pessimistic economists and naysaying media pundits are railing on about a pending recession and the stock-market toll it must inevitably take. Of course, they completely miss the point: America has seen recessions come and go; ditto for bear-market declines.

Main Street working folks know full well that America’s system of free-market democracy and private enterprise generates fabulous wealth and job creation over the long haul. They know full well that business cycles come and go. They know full well that the economic recovery upturn will soon follow the recessionary downturn. It’s been happening for more than two centuries.

Today, the key issue for the stock market and the economy is whether business will be able to function at all. If the terrorists are repelled, or eliminated, then domestic prosperity will resume its upward course.

Swift and successful prosecution of the homefront security war by Bush and Ashcroft will keep U.S. business open for business, and that is very bullish for stock markets and the economy.



Text