Stephens in Memo: Rough Monday Possible, but Spending Should Help

Warren Stephens, president and CEO of Stephens Inc., said in a memo to employees Friday that while some signs point to a "rough opening" of major U.S. financial markets on Monday, fiscal stimulus in the form of government spending could prevent further economic slowdown.

Stephens sent the memo, one of encouragement, to employees of the Little Rock-based investment firm, as the nation struggles to recover from terrorist attacks that destroyed the county's symbol of economic power, the World Trade Center, and left many of the world's most powerful financial institutions in disarray.

Trading on two of the major U.S. markets, the Dow Jones and Nasdaq, have been suspended since the terrorist attacks took place early Tuesday. It is the longest period the stock market has been closed since World War I.

For that reason alone, Monday's opening is expected to be difficult.

"Markets do not like interruptions in liquidity," Stephens wrote. "Even brief 'circuit breakers' have increased downside pressure when trading resumes. The build up of 'illiquidity pressure' on the opening in this case could be enormous.

"It is also important to remember the markets weren't doing well before the attacks on Tuesday. The economy has been severely contracted since Tuesday as many people and businesses were impacted by the attacks. All of this seems to indicate a rough opening on Monday."

But Stephens pointed out that "there is no lasting damage to our nation's economy or infrastructure." Calling damage from the attack a "setback for sure," Stephens wrote that he believes the long-term "up-trend" in productivity and economy are real and that those trends will provide a firm foundation for the economy and financial markets.

Stephens also wrote that Friday's Congressional approval of $40 billion in recovery aid will further help stimulate the economy.

"My econ 101 book (which I still have) makes it clear that in times of economic slowdowns, fiscal stimulus (i.e. government spending) as well as monetary policy (lower rates, more money in the system) is what the government is supposed to do," Stephen wrote. "If we are indeed in for a multi-year military build up, this is additional fiscal stimulus that will help bring us out of the slowdown."

Finally, Stephens asked employees to maintain perspective and to act professionally in the face of uncertainty.

"Monday (and the rest of the week) will be tense and stressful. Put in perspective, this is not life or death. Be professional, courteous and humorous (when you can)," he wrote. "At the end of the day, let's be able to say we did a great job (not just good). If we do, then we've done our part to win this fight one day at a time."

Financial experts expect a rash of selling on Monday as the market opens. Others expect the Federal Reserve Board to cut interest rates, possibly as much as half a percentage point, to help ease the economic strains of the attacks and prevent the country from coming closer to recession.