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Daily Newsletter, Thursday, 09/13/2001

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PremierInvestor.net Newsletter               Thursday 09-13-2001
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In section one:

Market Wrap: Line In The Sand 

Sector Impact - Insurance Exposure
Sector Impact - Airlines and Aircraft Manufacturers
Sector Impact - Spotlight on Oil
Sector Impact - Playing Defense

Special Report - A Split Decision?

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===========
Market Wrap
===========

Line In The Sand
by Jim Brown

The TV networks are starting to go back to normal programming.
Only the news channels are still broadcasting non-stop "attack
on America" reports. Miraculously, survivors are still being found 
in the rubble even when adjoining buildings are still in danger
of collapse. The FAA has issued new rules for flying and opened
airports for operations again. The hijackers have all been
identified and arrests are underway for those accomplices which
can be located. But America has not yet gone back to business as 
usual.

What business as usual may mean remains to be seen. The stock
markets will remain closed until Monday due to infrastructure
problems at the NYSE and continuing cleanup and rescue operations.
Just this afternoon the capital building was evacuated do to a 
bomb scare. Vice President Chenny was relocated to Camp
David for unspecified reasons. New York airports were closed
again in late afternoon by the FBI for unspecified reasons. Four
men reportedly dressed as pilots were detained at a New York airport
when they tried to board a flight. The magnitude of the disaster has 
caused extreme over reaction in all areas of security. While this 
is going to be a nuisance for those affected it will undoubtedly 
provide a safer environment. It will also provide a fertile 
ground for pranksters and bomb hoaxes. 

Travel as we know it has ceased. Amtrack is booked solid for
the next ten days. There are almost no rental cars available in 
any major city. The new rules for air travel will make us feel
like we are traveling in Israel due to the security cautions.
No curbside check in, only passengers can go past security. Some
airports have prohibited parking at the airport. Stringent ID 
checks will be required at every checkpoint. Armed sky marshalls 
will be on most planes. Check in before boarding is now estimated 
to take 2.5-3 hours. Carry on luggage will be subject to increased 
searches. Sounds like a travelers nightmare.

Is it any wonder that airline reservations are being cancelled 
in record numbers? Hotel reservations are evaporating at tourist
locations like Florida, California, Vegas, Atlantic City. The
American citizen is going to stay home for the foreseeable future.
The government has issued warnings for all Americans traveling 
abroad urging them to curtail outings and keep a very low profile.
Can you say cancel European vacations?

The news media keeps referring to the spurt in building as the
buildings destroyed in New York are rebuilt. If they are going
to rebuild the WTC will they put a target on the side for the
next attack? After all this was the second time terrorists had
use the symbol of world capitalism as an attack point. There is
a rising amount of commentary that the skyscraper may be dying.
Do you think Morgan Stanley will want to put 50 floors of 
operations in another 100 story building any time soon? Anyone
who thinks that this will never happen again is severely mistaken.
We are an open society and the strongest power in the world. This
also makes us the primary target for anyone wanting to make a name
for themselves in the future. Do you think Saddam Hussein would
pass on a chance to take out the Sears Tower if it was offered
to him? How about the TransAmerica tower in San Francisco? One
only has to compare the deaths and damage done to the Pentagon
compared to the damage to the towers. 120 killed and only the
impact area destroyed. Business as usual in the other sections
of the building. 

Skyscrapers may be an endangered monument to modern building
techniques. Taking this attack to the next level, like the Tom
Clancy novel, it would be easy for Osama Bin Laden to lease
or buy a 747 somewhere in Asia and load it with explosives. That
flying bomb could come right through the air traffic control
system on a regular flight plan and until it deviated to its 
target nobody would be any wiser. 

To combat this in the future and it is only a matter of time 
until it is attempted, corporations are likely to go back to
the distributed campus concept in an effort to protect their
business and employees. Being in a very highly concentrated
population center is not as meaningful with today's Internet
communications as it was when things went by courier and
mail. We are far less interested in the hassles of working
downtown than we are with safety concerns after the Oklahoma 
bombing.

Consider that there are over 150,000 financial/market related
workers in the square mile around the NYSE.  Am I the only one
that sees this as another bullseye? Most people do not want
to acknowledge the risk but Osama bin Laden has been trying
to buy/steal nuclear weapons for at least four years. Several
newspapers from that part of the world have claimed that he
was successful in getting some from Chechnya for $30 million
and two tons of opium. He is reportedly attempting to convert
to them suitcase weapons for obvious reasons. The FBI and the
US government has offered a $5,000,000 reward for him since
1999. http://www.fbi.gov/mostwant/topten/fugitives/laden.htm
It is only a matter of time before some terrorist faction
explodes a nuke in a major city. Any guess on which city would
make the most likely target after all the TV press and market
shutdowns?

I am glad to see the markets remain closed until Monday. The
rescue needs to continue without the complication of massive
traffic and the influx of those traders. We will be doing a
special strategy session for next week in the weekend newsletter.

The coalition against terrorism is growing and the building
blocks are being put into place for a massive retaliation. 
India has offered its airfields for staging. The United Nations
invoked article five and opened all NATO airfields to unrestricted
operations for coalition efforts. Several OPEC nations including
Saudi Arabia have offered their airfields as well. The U.S. needs 
to build this coalition to prevent the idea that it is the U.S. 
against Islam. The terrorists will try and spin this in that
direction to garner support. Regardless of the numbers of countries
in the coalition the terrorists are not stupid, we will still
be the eventual target for future attacks. It is stupid to
think that there will not be future attacks. There is no way
to wipe out these factions. Osama Bin Laden announced that he 
had no involvement in the WTC attack but he was glad it happened
and then promptly dropped out of sight. The Justice Dept said
there could have been as many as 50 people involved in the WTC
attack in addition to the 18 hijackers. This was not a one man
show or a random event. The Laden terrorist group called Al-Qaeda
has huge amounts of money and thousands of members in dozens of
countries. There is no way the coalition can find and destroy
all the elements of this group, ever! Al-Qaeda is only one of
many groups that have as there sole goal terrorist attacks on
the U.S. and Israel. Every successful attack encourages an even
bigger effort for the next attack. If Al-Qaeda can be so
successful then others will try to match them or exceed them.
Not a pretty picture. The groups have now had several days to
spread out, go even deeper underground and make it harder for
the coalition to find them. Retaliation will not happen overnight. 

Let me preface this paragraph with this fact, I am a republican.
I believe in the things George Bush stands for. However, I am
very disappointed in his performance so far. Enough of the calm
"we will find the people responsible and bring them to justice, 
(pause)" rhetoric. Enough with the eight words and pause for effect 
when speaking! Where is your emotion? Is he so paralyzed with doubt
and indecision that he doesn't know which way to jump? While
these are my impressions on the surface I know that in reality 
he is biding his time until the plan is in place. Intelligence is 
being gathered, satellites are quietly taking pictures and monitoring
the dispersal from the terrorists strongholds. Governments are
being threatened with compliance or attack. Countries that will
not give coalition troops free rein for ground strikes against 
terrorist locations will be faced with being put on the "harboring"
list and themselves being targeted. Iraq, Iran, Syria, Libya and
other countries not immediately being targeted are watching closely.

Mr. Bush, maybe this is selfish on my part, but it is time to 
stand up and be counted. The terrorists may have wanted to 
teach us a lesson by such a massive attack. Unfortunately
the lesson may backfire on them. As the strongest power on
the planet we endure the many stings and barbs of lower level
attacks, kidnappings, harassment and embarrassments by turning
the other cheek. We do not want to appear as a bully to the
world. We are a diverse culture and we spend billions on things
like football games, CDs, trinkets and toys of all kinds. It is
hard to capture our attention on any one thing. We are wealthy,
spoiled and fundamentally decent. The terrorists of the world
think this makes us weak. We are not weak. We are the strongest
power on earth when provoked to wrath. We are currently in pain
from the bloody nose we received this week. We are fully awake!
Only a few times in history has anyone managed to provoke the 
American psyche to the extent we were this week. The Japanese 
did in 1941 with Pearl Harbor and paid the price. The American 
people rose up in mass and mounted the biggest war effort known 
to man and Japan paid dearly. 

The pain and shock is clearing and the American public is wide
awake. Retailers have sold out of American flags in only two
days. Public mourning is rapidly turning into public outrage
and our elected officials had better pay rapt attention.
The president has a blank check. The coalition is gaining 
speed and the eventual outcome is not in doubt. Bush may be 
following the "speak softly and carry a big stick" plan
but he needs to ramp up his words to the point where countries
harboring terrorists begin to worry about their position. The 
American people are awake and they are beginning to focus. Mr.
Bush, don't let this opportunity pass to rally Americans to 
greater unity and purpose. Don't let those 4700 people die in 
vain. The country is uniting for a common cause and you need to 
be our leader, even our cheerleader but not our counselor. We 
will defend our freedom to the death and this is a message the 
world needs to understand. They are looking at us and will measure 
us by our response. If a 98 pound weakling can give us a bloody nose 
and then run and hide with impunity then others will be tempted to 
taunt the sleeping lion as well. Send a message to the world that 
we are mad as hell and we are not going to take it anymore. Follow 
it up with real action against Bin Laden and make the wannabe 
terrorists reconsider their chosen profession. Maybe, just maybe, 
we can create another decade of peace and prosperity before the 
next generation of dissidents will need to be taught the lesson 
again. Osama Bin Laden has finally stepped over the line and it 
is time to make an example of him. The American people will settle 
for nothing less!


================
Sector Impact
================

Insurance Exposure
by Jeffery Canavan

Damages from this week's attacks on the World Trade Center and 
Pentagon are expected to reach billions of dollars.  Insurance 
claims for property, injuries, workers compensation, loss of 
life, and business interruption could reach $30 billion.  

Insurance companies do have reserves know as reinsurance to cover 
substantial claims, but investments may need to be liquidated to 
cover claims.  Some financial assistance from the federal 
government may also be required.  

The only other disaster of this magnitude was hurricane Andrew, 
which produced damages in excess of $15 billion.  Insurance 
companies had a difficult time recovering from those losses, but 
were eventually able to bounce back.

Whether this action is deemed an act of war or an act of 
terrorism could also determine how much exposure insurance 
companies will face. Acts of war are not covered under most 
policies, while acts of terrorism generally are. It is unsure 
what stance insurance companies will take but the constant 
reference by government officials that this is an act of war 
could tempt a few to fight these claims in court.  This 
seems inconceivable to us as spectators to this horror, which 
clearly appear as acts of terrorism but when you're talking about 
billions of dollars in losses lawyers may argue otherwise.  One 
analyst speculated that the government may have to step in if one 
way or the other to shore up the situation.

One insurance company that stands to lose millions is Chubb 
(NYSE:CB).  Chubb has significant exposure to property as well as 
businesses that resided in the World Trade Center.  The company 
is estimating that reinsurance could limit pretax losses to 
between $100 million and $200 million.  Additional claims for 
workers compensation and business interruption makes an exact 
amount difficult to predict.

Chubb Daily Chart




Based solely on the trading of European insurance stocks, Chubb 
could be in for at least a 10% to 15% drop on Monday.  That would 
put the stock $6 to $10 lower.  $56 looks like the most solid 
support level, but technical levels could take a backseat on 
Monday.

American International Group (NYSE:AIG), the nation's largest 
insurer of business, issued a preliminary statement that pretax 
losses would be around $500 million, but stated that it was 
impossible to get an accurate estimate.  Most of AIG's claims 
will not come from property, but rather a wide range of 
coverages.  

American International Group Weekly Chart




A 10% drop would plunge AIG to $66.83, and a 15% drop would see 
the stock trading at $63.13.  $54 looks like the most solid 
support level, but that would be a 27% drop.

American International Group is currently an Option Investor put 
play, but we do not wish to benefit from this tragedy, so we will 
be dropping it from our play list.  

Those are two of the insurance companies that could attract the 
most selling on Monday, but most insurance stock should come 
under pressure, especially those with substantial life insurance 
or workers compensation claims. 

Below is a list of companies that comprise the Insurance Index 
(IUX.X) so readers can take whatever action they deem necessary 
to protect their holdings.

AFLAC                     AFL
Amer General              AGC
American Investment Group AIG
Allstate                  ALL
Chubb                     CB
CNF                       CNF
Conseco                   CNC
Hartford                  HIG
John Hancock              JHF
Jefferson Pilot           JP
Lincoln National          LNC
Loews                     LTR
MBIA                      MBI
MetLife                   MET
MGIC Investment Corp      MTG
Progressive               PGR
SAFECO                    SAFC
St Paul                   SPC
Torchmark                 TMK
Van Kampen                VNM

================
Sector Impact
================

Airlines and Aircraft Manufacturers
by Jon Farnlof

Airlines

Already battered by slumping business demand because of a weak 
global economy, the financial aftershocks of Tuesday's events are 
going through the aviation industry like a typhoon.  Airlines 
generally operate with a tight 3-percent profit margin.  Those 
margins are going to be under pressure as revenue and earnings 
take hits from the travel halt, disrupted flight schedules, higher 
fuel costs and insurance premiums, declines in overseas travel, 
increased security expenses and government regulation.  The recent 
grounding of their planes alone cost the average major airline $43 
million a day in lost revenue.  By some estimates the new security 
expenses could cost the industry millions, if not billions.

Some airlines are likely to have particular liability due to the 
attack.  AMR (AMR), the parent of American Airlines and UAL (UAL) 
the holding company for United Airlines (AMR) as the airlines whose 
planes were hijacked and their insurers, may need to pay substantial 
damages to victims' families.  And Robert Hiscox, chairman of Lloyds
of London underwriter Hiscox Plc is questioning,  "Are the aviators 
responsible through their liability policies for the building 
damage?"  He added, "there is no legal precedent for how it's paid."

In general, airlines will probably need to raise fares to cover 
these costs at a time when they will be stressed to reduce fares to 
lure back the traveling public.

As a result, Standard & Poors has placed the long-term credit 
ratings for all U.S. airlines, British Air (BAB) and Air Canada 
(ACNAF) on negative CreditWatch.  Conditions are so difficult that 
according to at least one analyst, some airlines may be pushed into 
bankruptcy.  On Wednesday, the small and struggling Midway Airlines, 
already in Chapter 11 bankruptcy protection announced it was going 
out of business. 

Losses are not solely confined to US carriers.  Over 4,000 of the 
world's 12,000 commercial aircrafts have been grounded.  Hamstrung 
by the loss of the $1 billion a day US market, the International 
Air Transport Association, with 266 member airlines, estimated 
immediate industry losses and costs at $10 billion.  Prior to the 
tragedy, the association had projected losses of $2.8 billion.  

Broker Schroders Salomon Smith Barney has already downgraded the 
European airlines saying the attack is "likely to have a 
catastrophic effect on European airline profitability."  They cited 
the greater risk of global recession and a possible initial drop in 
air travel by as much as 20-percent.  In overseas trading, airlines 
with extensive US flights such as Lufthansa, Singapore Airlines and 
British Airlines have dropped as much as from 2.7 to 5.4-percent in 
the days following the attack.  .     

In short, when trading resumes on Monday, it is likely that 
airline sector share prices will be hammered.

Aircraft Manufactures

If people are not flying, airlines won't be buying new aircraft.  
Bear Stearns analyst Steve Binder expects airlines to take advantage 
of catastrophic clauses in their contracts to delay deliveries in 
2002 and 2003.  He sees 2003 commercial aircraft production falling
more than 10-percent.  A Lehman Brothers analyst said that he thinks
aircraft demand for Boeing (BA) and its European rival Airbus will
"collapse."  

Binder also forecasts Boeing CO (BA) shares are likely to see a 15 to 
20-percent drop in share price.


================
Sector Impact
================

Spotlight on Oil
by Jeff Bailey

Recent events in the U.S. have part of the world spotlight on the 
Oil sector.  The reason this group of stocks has been pushed back 
into the spotlight is that there is speculation at this point 
that supply to the United States may be disrupted at some point 
should U.S. and Middle East tensions escalate.

Since Tuesday's events have had many U.S trading floors halted, 
lets look at what has taken place overseas as it relates to the 
futures market in oil and Brent Crude Futures.

On Monday, September 10th, the October 2001 Brent Crude futures 
contract settled at US$27.45 per barrel.  On Tuesday, after the 
WTC and Pentagon attacks, the Oct01 contract settled at $29.06 
after trading as high as US$31.05.  By Wednesday, Brent Crude 
futures had calmed down with a day's range of US$28.00-$29.50 and 
settled at $28.02.  (Should commodity markets here in the U.S. 
not open for trading tomorrow, traders can visit 
http://www.ipe.uk.com/prices.html to follow Brent Crude prices)

As you can see, the initial reaction found buyers coming into the 
oil markets, but things have settled down and oil prices are 
roughly $0.60 higher than just before Tuesday's events.  

While there will most likely be news events coming over the news 
wires regarding U.S. intentions toward recent terrorist actions, 
current market action in Brent Crude gives hint that many market 
participants are awaiting news out of Washington as to what type 
of action (if any) the U.S. will take as it relates to recent 
terrorist activities in the U.S.

Risk

Risk is the first thing that an investor begins to try and 
understand when it comes to an investment.  There are many risks 
involved when looking at or holding an oil stock.  Here I will 
attempt to discuss the most common risks an investor should look 
at before making an investment in an oil stock as it relates to 
recent events.  Perhaps the most thought of is "geographic risk."

Geographic Risk

The oil stock we invest in or may be thinking about investing in 
may carry "geographic risk."  As it relates to supply/demand, 
this may be considered a supply issue.  Where does this oil 
company derive the bulk of its revenues?  Are the bulk of its 
revenues derived from areas in the Middle East where those assets 
may be at risk depending on how future events unfold?  Many of 
the larger multinationals derive a large portion of their oil 
production from overseas or reservoirs located in the Middle 
East.  Once the oil is produced, will some of that oil be loaded 
on a tanker and transported to the United States or other parts 
of the world?  Will those transportation routes be accessible?

No long after the attacks on the WTC and Pentagon, the U.S. 
closed it borders to Canada and Mexico.  Some seaports were also 
closed and this raises the issue of just how supply of oil may 
reach U.S. shores should events escalate.  I am in no way 
implying that this type of situation would occur, but it does 
give us something to think about and build on when making an 
investment decision in oil stocks.

CBOE Oil Index (OIX.X)

Often times we are monitoring the CBOE Oil Index (OIX.X) in order 
to track stock prices for oil companies.  Index components are 
Amerada Hess (NYSE:AHC), British Petroleum (NYSE:BP), Chevron 
(NYSE:CHV), Kerr McGee (NYSE:KMG), USX Marathon (NYSE:MRO), 
Occidental Petroleum (NYSE:OXY), Phillips Petroleum (NYSE:P), 
Royal Dutch Petroleum (NYSE:RD), Total (NYSE:TOT), Texaco 
(NYSE:TX), Unocal (NYSE:UCL) and Exxon Mobil (NYSE:XOM).

Of these companies, three have corporate headquarters outside of 
the United States.  British Petroleum's corporate headquarters 
are based in London, UK, Royal Dutch is based in The Hague 
Netherlands, Netherlands and Total is based in Courbevoie, 
France.  The remaining companies are headquartered here in the 
United States.

Persian Gulf War

I do not tout myself as an oil analyst, but I did work for Mobil 
Oil Corporation for several years in the production geology 
department.  During that time, I had several friends based in 
overseas locations during the Persian Gulf War.  That was a time 
of great concern for me as I knew several geologists and 
engineers that were on assignment in Saudi Arabia.  

During that time, all Mobil employees (in the U.S. and abroad) 
were given educational training regarding potential terrorist 
activities against its employees.  I traveled a lot during that 
time period and every employee had various instructions on how to 
maintain anonymity and travel safety tips.  Suffice it to say, 
recent events are very similar what we were warned about in the 
early 1990's.  One of the cardinal rules was that no more than 3 
employees working on a particular project were allowed to board 
the same airline flight.

History

Let's take a look at how one of the world's largest oil companies 
traded during that time of unrest and see if we can get a feel of 
what to look for as it relates to how oil stocks might react 
near-term.

I'm a big believer that we can use past history to get a better 
understanding of how market participants react.  While the 
Persian Gulf War was a different event than what is taking place 
today, there may be certain ties or assumption made as it relates 
to the United States and the Middle East.  Here's how shares of 
Exxon Mobil (NYSE:XOM) traded during that time frame.  I would 
note, that the chart below is that of Exxon as the merger between 
Exxon and Mobil had not yet occurred.

Exxon Mobil Chart - before and after Persian Gulf War




Tensions in the Middle East were rising well before Iraq invaded 
Kuwait on August 2, 1990.  The above chart was taken from 
www.stockcharts.com and their feature of historical charting 
capabilities. 

In recent reports we've written on the Premier Investor Network, 
we've noted how markets seem to have had a "knee-jerk" reaction 
initially to various world events.  Then as markets have time to 
digest the news and act more rational, things begin to calm down.  
In recent day's we've seen Brent Crude trade very similar so far 
to the historic chart above of XOM.  From here on we can perhaps 
track Brent Crude and other crude oil contracts to see if history 
will repeat itself.  Notice the run up in shares of XOM prior to 
Iraq's invasion of Kuwait from the $12.50 level the $13.50 level.  
Then the settling of trading back to $12.50 over time as Iraq's 
troops retreated from Kuwait.

Domestic/ North American Oil Producers

There are energy companies that derive the bulk of their oil 
production from areas outside the Middle East.  Some derive much 
of their production here in the U.S. or near our shores.

In recent commentary I did mention that the Premier Investor 
Network would refrain form profiling stocks that may benefit or 
decline due to recent events.  Since oil stocks could potentially 
be a sector that could benefit depending on how things play out, 
I will refrain from specific stock recommendations at this time.

Subscribers questioning the existence of oil companies 
that do not have a great deal of international exposure may wish 
to begin researching shares of Suncor Energy (NYSE:SU) should 
they be looking for an energy play with little international 
exposure.

================
Sector Impact
================

Playing Defense
By Eric Utley

Tuesday's tragic events forever changed the landscape and psyche
of America.  The ramifications of the terrorist acts will impact
many things American.  Preliminary statements from government
leaders suggest that the U.S. defense sector is in store for
further build out.

Strong Statements

Thursday, President Bush declared, "We have just seen the first
war of the 21st Century."  The President vowed to "lead the world
to victory" against terrorists.

In a separate statement, Deputy Defense Secretary Paul Wolfowitz
told reporters that the United States would lead a sustained
military campaign against terrorists factions.

The Secretary said, "One thing that is clear is you don't do it
with just a single military strike, no matter how dramatic."
Wolfowitz added, "We're going to keep after these people and
the people who support them until this stops."

In order to defend against what has come to be known as 'A New
Kind of War,' government leaders rushed Thursday to pass an
emergency terrorism package through Congress.  The price tag of
the package amounts to $20 billion, which will pay for the
searching of victims, the clean up process, and for immediate
military needs.  According to Secretary Wolfowitz, the $20
billion package is only the tip of the iceberg.

Wolfowitz said, "It is not just to tell the American people, but
to tell the world that $20 billion is a lot of money.  But for
this country, it is just a down payment on what we are going to
do."

Representative Bill Young, a Republican from Florida, said the
'second punch' of the spending package would be delivered with
next year's national security appropriations.

*****

With the bipartisan support coming from government leaders for
a further increase in defense spending, we thought it would be
beneficial to profile several companies in the defense industry
ahead of any continued build out.  We, however, appreciate the
fact that any potential benefit from the Attack on America will
NEVER compensate for what was lost Tuesday, September 11, 2001.
It is only after accepting that much that we will profile
companies in the defense industry.

The Facets of Defense

It should be noted that the defense industry has seen significant
spending increases over the past decade.  The defense industry,
ironically enough, hit a bottom about ten years ago, when the
Soviet Union broke up and the Cold War ended.  Since that time,
sequential increases in spending have benefited those companies
operating in the defense industry.  The Attack on America,
unfortunately, should give yet another boost to the business of
protecting the United States.  It remains to be seen what the
long-term impact of the terrorist attacks are on the business.
Going out five or ten years is difficult to predict with any
degree of intelligence.  But the business should see an
increase in orders over the next six to nine months.

The areas of the defense industry are quite varied.  And it
remains to be seen which segments will benefit most.  The
larger defense items, such as fighter jets, bombers, and tanks
are less likely to receive an immediate boost in orders.

For example, Lockheed Martin (NYSE:LMT) is less likely to see
an immediate increase in orders for its F-16 Fighter Jet.  And
the same goes for Boeing (NYSE:BA) and its F-15 and various
bombers, including the B-2 and B-52.  (In Boeing's case, the
company is likely to see a large blow to its core business of
manufacturing commercial airlines.)

Not only are the bigger ticket items less likely to see a
pickup in orders due to their cost and time requirements for
production, but the war against terrorists does not necessitate
the use of bombers nor tanks.  Those tools don't work against
terrorists.  The war against terrorists is fought on a
'different' battlefield, so to speak.

The areas that are most likely to see an increase in spending
are those in defense-related electronics and battlefield
information technology.  Companies that manufacture surveilance
equipment, satellites, electronic listening devices, and
precision weapons are likely to see an increase in orders.

Alliant Techsystems

Alliant Techsystems (NYSE:ATK) is a company that specializes
in the aforementioned areas.  The company operates in four
principle divisions: Propulsion, Composite Structures, Munitions,
and Precision Capabilities.  Among its products include
military ammunition, munitions propellants, commercial gunpowder,
anti-tank systems, tactical barrier systems, precision-guided
munitions, electronic warfare systems, and infantry weapon
systems.  The company's primary customers are the U.S. Air
Force, U.S. Department of Defense, and allied nations.

Alliant is somewhat hedged when it concerns the focus of U.S.
government spending through its partnerships with allied
nations.  There's sure to be debate over whether to focus
defense spending domestically or abroad.  The spending will
most likely be divided between the two, but Alliant's presence
in countries such as Israel, Kuwait, Pakistan, and Saudi Arabia
should be of a large benefit in this particular case.

As seen on the chart below, shares of Alliant Tech have seen
a steady increase in value since early 2000, which is a
testament to the overall increase in defense spending during
the recent past.  Further increases in spending could very
well drive shares higher.




Northrop Gruman

A large portion of Northrop Gruman's (NYSE:NOC) operation is
concerned with defense electronics, which could make the
company a beneficiary of increased defense spending.
Specifically, its Information Technology Division known as
Logicon.  The division, which is a wholly owned subsidiary
of the company, is a leading provider of information
technology services to the U.S. government.  Logicon's
specialties include control communications, intelligence
operations, surveillance, and reconnaissance. 

Earlier in August, Logicon announced that its joint venture
with Computer Sciences (NYSE:CSC) had been selected by the
National Security Agency (NSA) to develop the government
agency's Groundbreaker Information Technology Network.  The
deal was valued at roughly $2 billion at the time, but may see
a significant short-term increase in funding.  It was originally
estimated that the project would take about ten years to
complete, but that timeline may now be shortened.  When
completed, the Groundbreaker program will provide communication
and network services, along with distributing computing and
enterprise management services for the NSA at its headquarters
in Fort Meade, Maryland, along with its satellite offices.

Like shares of Alliant Tech, shares of Northrop Gruman have
experienced a significant rise since early 2000.




General Dynamics

General Dynamics (NYSE:GD) is a diversified defense contractor
with operations ranging from Marine Systems to Information
Systems & Technology.  The company maintains leading market
positions in land and amphibious combat systems, information
systems, aircraft services, and shipbuilding systems.  The
two former divisions stand to see the largest increase in
spending over the next two or three quarters.

General Dynamics' Information Systems & Technology division
serves the defense industry with the "infrastructure and systems
integration skills they need to process, communicate, protect and
manage information effectively," as stated on the company's Web
site.  The roles of the company's products and services from this
division are to aide military organizations with the gathering
and processing of "battlespace" information and intelligence.

General Dynamics' Web site describes its Combat Systems Division
as follows: "Combat Systems is becoming the world's preferred
supplier of land and amphibious combat system development,
production and support.  Its product line includes a full
spectrum of armored vehicles, light wheeled reconnaissance
vehicles, suspensions, engines, transmissions, guns and
ammunition handling systems, turret and turret drive systems,
and reactive armor and ordnance."  These products can be
employed by special forces when negotiating small bands of
terrorists and are likely to see an increase in demand from
the U.S. government and its allies.

The General Dynamics chart is very similar to what has been
displayed on its cohorts' charts.  The steady, long-term
trend higher reinforces that defense spending has been on
the rise.





L-3 Communications Holding

L-3 (NYSE:LLL) is a little less-known in the defense industry,
but may see an increase in orders, especially in its Military
Communications & Tactical Security Division.  The company
manufactures a ground sensor system which is used along paths
of travel of enemies on the battlefield.  The sensors detect
seismic and acoustic changes, as well as energy and magnetic
field disruptions.  The aim of the sensor is to detect
enemy activities on the battlefield.

Unlike its above-mentioned counterparts, shares of L-3 have
been on a steep slide since earlier this summer.  That trend
may reverse if the company sees a significant up-tick in
orders over the next few months.




*****

Companies within the defense industry, possibly the ones
we've profiled in this column, will no doubt be vying for a
large slice of the proposed spending increases by President Bush
and members of Congress and the Senate.  Indeed, there are many,
many more companies in the business that are smaller, niche
players that we didn't profile in this column.  But the expected
increase in spending should positively impact the entire sector
over the intermediate-term.

President Bush had already requested about $330 billion for his
2002 budget, which is a 14 percent increase over President
Clinton's $290 billion request during 2001.  That number may
meet approval, and then some this year.  And according to the
remarks from our governmental leaders Thursday, 2003's defense
budget should see a measurable year-over-year increase.  For
that simple reason, the defense sector may be worth watching
over the coming six to nine months.

My prayers are with the victims and their families.


================
Spercial Report
================

A Split Decision?
by Brenda Johnson

In light of this week's events, it is reasonable to consider that 
some companies may choose to postpone previously announced stock 
splits. The Investor Relations departments for each of the 
following companies have confirmed that they have not altered the 
original schedule and shares will in fact trade on a split-
adjusted basis as planned or upon the re-opening of the market.
Keep in mind that decisions are always subject to change, in 
which case individual companies would most likely issue a press 
release.

Stock splits scheduled for this week and for the week of 9/17

Payable    Executable                            Ratio
09/10/2001 09/11/2001* Nicholas Financial (NICK)  2:1 
09/10/2001 09/11/2001* Herley Industries (HRLY)   3:2 
09/11/2001 09/12/2001* NVidia Corp. (NVDA)        2:1 
09/14/2001 09/17/2001  Smithfield Foods (SFD)     2:1 
09/14/2001 09/17/2001  Chittenden Corp (CHZ)      5:4 
09/18/2001 09/19/2001  Sterling Bancshares (SBIB) 3:2 
09/20/2001 09/21/2001  N.Y. Community Banc (NYCB) 3:2 
09/21/2001 09/24/2001  Moog Inc. (MOGa)           3:2 

*These companies will trade ex-dividend upon market's re-open


The following stocks began trading on a split-adjusted basis on
Monday, September 10:

Payable    Executable                            Ratio
09/07/2001 09/10/2001  SCP Pool Corp (POOL)       3:2 
09/07/2001 09/10/2001  Alliant Techsystems (ATK)  3:2 
09/07/2001 09/10/2001  CONMED Corp (CNMD)         3:2 
09/07/2001 09/10/2001  Monaco Coach (MNC)         3:2 
09/07/2001 09/10/2001  Connecticut Water (CTWS)   3:2 
09/07/2001 09/10/2001  National Fuel Gas (NFG)    2:1 


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