Companies are reporting that business is improving and investors are embracing these announcements. However, these companies are reporting that business is improving from the days after the attack on September 11. During the week after the attack, consumers barely came out of their houses. Now consumers are getting back out and have some pent-up demand that is getting worked out. October will be a very important month to watch. Will the just announced $75 billion stimulus package get the economy going? Or will it sputter like the tax rebate checks have? Will the consumer shrug off the attack or is this the event that will cause consumers to pull back and retrench? Right now there are a lot of questions, the next month should help answer most of them.

Auto sales showed resiliency in September considering the events of September 11. September auto sales came in at a 15.9 million unit annual rate. Before the attack, sales were running at 16 million units and finished close that level despite a 40% drop in sales during the week of the attack according to J.D. Powers. No doubt auto sales were spurred by aggressive sales promotions that include zero-rate financing by several carmakers including Ford and GM. Ford announced that its aggressive marketing cut into third quarter earnings. Ford revealed in its 8-K filling that while it is "pleased that our 0.0% financing program in the U.S. helped sales improve in the second half of September, the program will be very expensive." During the conference call Lloyd Hansen, Ford's Controller, added, "essentially all of the cost is being booked in the third quarter." At least Ford in admitting that it is stuffing expenses into the third quarter. It will be interesting to see how many companies follow this. Since investors have already written-off this quarter because of the terrorist attack it is highly likely that companies will try and stuff expenses into the third quarter. This would reduce the expenses in the fourth quarter and boost profits at a time when there might not be an excuse.

Here is how the automakers fared in September:

Kia up 25%
Acura up 14.7%
BMW up 4.4%
Lexus up 1.5%
Honda down 2.1%
Toyota down 4.2%
Mitsubishi down 5.5%
Mercedes-Benz down 8.6%.
Mazda down 16.5%
Audi down 18%
Nissan down 18.5%
Volkswagen down 19%
Porsche down 19%
Chrysler down 22%, trucks down 30%
Infiniti down 25.4%

After Ford announced production cutbacks last week, GM announced that it will reduce fourth quarter production by 3.6%, and Chrysler will idle 5 plants. The weak heavy truck market caused Volvo to announce it would close one of its U.S. truck plants. Its three plants are only producing at 30% of capacity. Volvo said that the terrorist attack could delay any recovery in the North American truck market until 2003.

Retailers have started reported their September results. Wal-Mart indicated that the terrorist attack would have little long-term impact and is going forward with its 450 new store expansion plans. Williams Sonoma announced that revenue for the year would be a little lighter than estimates, but earnings will be higher than current Wall Street estimates. October will be an important month for retailers. Retailers will need to clear out inventory for the holiday season. If retailers are unsuccessful, look forward to more sales and less profits. Chicago Federal Reserve Bank chairman, Arther Martinez, said that same-store sales may decline this Christmas season. He also indicated that "Things have really been in freefall, especially in the department-store sector.

It is little surprise that the IPO market is down from last years pace. There were 16 initial public offering during the third quarter raising only $2.9 billion, down from last years' 128 offerings raising $15.1 billion. Th global IPO market has not fared as bad, but still took a big hit. Globally, third quarter IPOs totaled $60 billion, down 61% from last year.

Bond issues have taken up some of the financing slack. Global bond issuance picked up to $737.3 billion from last years' $687.6 billion. Convertible debt has surged in popularity, up 70% from last year's level. Convertible bonds accounted for 47% of all bond deals compared to 24% last year.

Hotels are having a tough time since the attack, especially those catering to business conferences. PriceWaterhouseCoopers said the fourth quarter could be the worst quarter the industry has seen in 33 years. Wyndham International is laying off 5% of its workforce, or 1,600 employees. Additionally, Wyndham said that a "substantial" number of employees are working reduced shifts. This last week its occupancy rate has started to pick back up. Last week its occupancy rate was 60%, following 40% occupancy last week and 50% during the week of the attack. Hotels in Denver averaged 50%-55% occupancy rates for the month of September, making the worse September since the late 1980s.

The tax refund checks did not help spur spending in August. Personal spending increased 0.2%, a little below the 0.3% analyst forecasted. Spending on capital goods actually fell 0.8%, following a 0.3% decline in July. Personal income in August was unchanged, the first time it has not grown since January 1994. Instead of just being anecdotal evidence, it appears layoffs and salary cuts are working their way into the economic data. Instead of spending the rebate checks as the government had hoped, it appears consumers have decided to stash the checks into savings. The savings rate jumped to 4.1% form 2.5% in July. This is the highest rate since January 1999.

It looks doubtful that large year-end bonuses and profit sharing will buoy stagnating incomes. Over the past couple years bonuses and other performance-based compensation has grown to be a bigger source of workers pay packages. Robert Salwen, a principal at Executive Compensation Corp, believes that "Even at the highest level, bonuses will be down to the tune of 50 percent." Retailers and manufactures catering to high-end discretionary spending might feel the pinch. Pearl Meyer, president of Pearl Meyer & Partners, thinks that "2001 may well be the first test in many years of Americans' ability to live on their salaries - without the extra pay afforded by bonuses."

Besides announcing it will not meet revenue estimates for the third quarter, Nortel announced another round of layoffs and more charges and writedowns. Nortel will slash 10,000 more workers from its payroll and sell businesses that will affect another 10,000. In total, Nortel will employ less than half of the 94,500 workers it started the year with. The latest round of cost cutting is aimed at making the company profitable with $4 billion in quarterly sales. Previously, Nortel was targeting $5 billion in quarterly revenues.

Chip sales continued to fall in August according to the Semiconductor Industry Association. Sequentially, chip sales were down 3.4, and 42% on a year-over-year basis. The bulls think they see a glimmer of light in the fact that microprocessor chips actually posted a sequential gain of 3.1%. However, Via Technologies, a leading chipset supplier, announced that its revenues will miss earlier forecasts by 24% and profits by one-third.

Anther sign of the technology overcapacity is the announcement of Verado closing six of its eight data centers around the country. It will close six of its centers and move those operations into the data centers in Denver and Irvine. The centers being closed total 165,000 square feet of space and will leave Verado with 75,000 between the two remaining centers.

There have been a lot of discussions regarding the ethics of short selling. Even one Congressman ordered the SEC to investigate the effect short selling has had on the stock market after the terrorist attack. However, it appears the SEC will phase in eliminating the "up-tick" rule. I obviously have a biased viewpoint, but the following quote from Barnard Baruch sums up the debate better than anything I have read:

Bears can make money only if the bulls push up stocks to where they are overpriced and unsound.

Bulls always have been more popular than bears in this country because optimism is so strong a part of our heritage. Still, over-optimism is capable of doing more damage than pessimism since caution tends to be thrown aside.

To enjoy the advantages of a free market, one must have both buyers and sellers, both bulls and bears. A market without bears would be like a nation without a free press. There would be no one to criticize and restrain the false optimism that always leads to disaster.