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What 9/11 Tells Us in 2007

The economy took severe blows and came out ahead.

It's difficult to conjure up exactly how we all felt on Sept. 12, 2001, the day after the worst attacks on U.S. soil in history, yet as a country, we'll never be able to forget it.

The attacks on lower Manhattan and the Pentagon, as well as the economic environment that existed at that time, exposed our vulnerabilities and left us scared about the future.

The goal of the terrorists was not only to make us fear for our lives but also to devastate the core of our economy, the clockwork system of supply and demand that keeps us moving forward and has enabled this country to continue unparalleled growth since its birth. Were they successful? It's a tough question to even entertain, but it's an important one.

Whenever there is pain in the markets, it's natural to wonder if -- and to fear -- that pain will last forever. When the markets closed in the days after Sept. 11, it was natural to conclude that the economic strain we were experiencing then would never get better and in fact only get worse.

Even now, as we experience the anxiety caused by housing troubles, employment declines and the weakening consumer, it's hard to see the light at the end of the tunnel. But by looking at the aftermath of Sept. 11 and its backdrop, we can better understand our current environment.

Then and Now

Although we didn't know it at the time, 2001 found us in the middle of an economic recession, powered in part by the deflating of the Internet boom from the '90s. We were also blind to the corruption of mega-cap titans like Enron, Worldcom, Tyco, HealthSouth and Adelphia, which was about to hit the markets in 2002 with a force that carried the bear market into a record third year, driving the

S&P 500

that year down by more than 20%.

The pain in some areas persisted. The commodities, often considered terrorism hedges, have doubled or tripled since 2001; crude oil is up from the low $20s to the upper $70s (fueling enormous gains for companies like

Exxon Mobil

(XOM) - Get Free Report

, up from $200 billion in sales in 2001 to $365 billion in 2006 -- and their shareholders). Gasoline went from a 2001 average of $1.66 a gallon to as high as $4 before settling down to the high $2 range, and gold has soared from $270 an ounce to above $700.

Still, none of this has slowed down an economy that was initially fueled by Greenspan's 13 rate cuts from 2001-03 and then by improved corporate profits across the board among S&P 500 companies.

Just take a look at the numbers: On Sept. 10, 2001, the S&P 500 closed at 1092. Right now, despite falling over 100 points from its 52-week high, the S&P 500 is 33% higher, at 1453. The


, still reeling from the dot-com bust, closed at 1695 on Sept. 10, 2001, already down 31% on the year. At 2,559 as of the close yesterday, the Nasdaq is now 51% higher than then, even after hitting a low of 1102 in October 2002.

Nor have revenues suffered, as many feared they would after Sept. 11. Many large-caps, in fact, benefiting from the demise of their less-funded peers in the dot-com bust, have roared forward.


(MSFT) - Get Free Report

revenues in the year ended June 2001 were $25 billion; in the year ended June 2007, they were up to $51 billion.



, despite its recent stock market troubles, has seen revenues rise from $717 million in 2001 to over $6 billion in 2006;


(WMT) - Get Free Report

, probably the best proxy for the consumer, has seen sales rise from $191 billion in 2001 to $344 billion in 2006.

The chart below shows corporate profits after tax since Sept. 11, as compiled by the Commerce Department:

The rise has been steady, as have the incomes of the employees of companies:

Companies have also been returning their profits to shareholders via

dividends at a rate almost double that of Sept. 11, 2001:

In other words, despite fears that the boom in our economy is related to just the Greenspan-inspired liquidity, quite a different picture has been created. Corporate profits have boomed, leading to increased income and return of cash to shareholders via dividends.

Are these profits fueled by debt? Not at all. Net debt of the S&P 500, excluding financial companies, has actually fallen 11% since 2001 to $984 billion, according to a

recent article

in the

Financial Times


The Road Ahead

Sept. 11 was devastating both emotionally and financially for the entire U.S. Set in the background of the dot-com bust, recession and industry littered with corruption, it could have been the final blow to an otherwise fragile economy. Instead, as can be seen from the numbers above, the resilience of corporate America, investors and the consumer catapulted us repeatedly to all-time highs in profits, revenues, balance sheet stability and stock prices.

Would it have been worthwhile to bet against America these past six years? No, absolutely not. Look at the CSFB Dedicated Short Bias Index, which is comprised of hedge funds that focus on short selling (that is, betting against the market). This index, despite Sept. 11 and all the other weak economic features described above, was actually negative in 2001. Betting against the U.S. has not been profitable.

Nor will it be now, with everyone worried about housing, employment and the consumer. Cycles happen, and we've dealt with issues far worse than these. And, like in the aftermath of Sept. 11, we fortunately have much to look forward to.

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At the time of publication, Altucher and/or his fund had no positions in stocks mentioned, although positions may change at any time.

James Altucher is president of Stockpickr LLC, a wholly owned subsidiary of and part of its network of Web properties, and a managing partner at Formula Capital, an alternative asset management firm that runs a fund of hedge funds. He is also a weekly columnist for

The Financial Times

and the author of

Trade Like a Hedge Fund


Trade Like Warren Buffett



. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Altucher appreciates your feedback;

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