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November 1, 2001

The Fear Factor

By Kathryn M. Welling

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"The biggest problem today," says Harvey Eisen, chairman at Bedford Oaks Partners LP in Mt. Kisco, New York, an institutional investor with some $200 million under management, "is the fact that we've never been through anything like this before: the terrorist attacks here; and the fact that nobody understands how this war that Bush talks about is going to play out."

In the aftermath of the worst terrorist attacks on U.S. soil - and as Wall Street calculates the damage - Eisen had these and other perceptive comments in a wide-ranging Q&A.

How are you Harvey?

This has been tough. In 35 years, there's been nothing like this. It's just the worst.

Sure, even the crash in '87 was only' about money.

This time, lots of investors were already bearish before the attacks, because their portfolios were down. But Friday's action looked pretty much like a capitulation to me. On a short-term basis, the market is clearly very oversold, and so we will get a bounce. I mean, you got a bounce in 1929, after the crash. You always get a bounce. The question is, what's different this time? And what's clearly different is uncertainty. I went back over all of these so-called crisis periods.

The historical comparisons that every research house on the Street has been sending out?

Exactly. Everybody puts out this stuff. I think there were 14 or 15 so-called comparable crisis periods I looked at. Then I narrowed it down to the four that I thought might be relevant. I then narrowed it down to two that I thought really might be relevant. But finally I decided that I could find only one that I think is truly relevant. That was the 1990 invasion by Iraq of Kuwait.

But even that didn't involve an attack on civilians here.

No, but there was this tremendous uncertainty at the time. Because the U.S. had to prepare for war. There were worries about terrorist reprisals here. And the preparation for Desert Storm took - Let's see, they invaded Kuwait on August 2, so the preparation took five months. Remember, this was supposed to be a tremendous fighting machine that the Iraqis had. The Republican Guards and all that. Then the war was over in two days and the market took off. So I think the biggest problem today is the fact that we've never been through anything like this before: (A) the terrorists attacked here; and (B) the fact that nobody understands how this war that Bush talks about is going to play out. Not to mention that there really is no way to gauge it by the historical standards. That's what's making everybody nervous. The other thing is that clearly this is horrendous for the economy. I mean, before, economists were debating whether or not it was in a recession (which in itself was a joke), but now we're in a recession, big-time.

At least now it's recognized.