Supreme Court Vacancies; Market Reacts To London Attacks
ANNOUNCER: From New York City, America's financial capital, this is</s>IN THE MONEY. JACK CAFFERTY, CNN ANCHOR: Welcome to the program. I'm Jack Cafferty. Susan Lisovicz is on vacation this week. Coming up on today's program, the difference between shaken up and shut down. We'll look at how the world's markets reacted to the London terrorist attack. See what's changed if anything since September 11th. Plus, looking for the real deal. The G-8 Summit brought together powerful countries, for what? See if it added up to more than just a big the photo op. Plus risky business. Mortgages with bigger risk, lower rates are getting more popular. See how they can affect the economy if real estate turns south. Joining me today a couple of IN THE MONEY veterans. "Fortune" magazine editor at large Andy Serwer, Money.com managing editor Allen Wastler. So our beloved colleague Robert Novak reporting on Friday -- we tape this show on Friday -- so late last week, as you watch it at home on Saturday or Sunday, Novak was reporting that William Rehnquist's resignation from the Supreme Court was imminent, could have come as recently as last Friday. If it happens, and if Novak's right, then we have two vacancies on the Supreme Court. And my guess is that nothing else gets done in this country now for at least six or eight months until we get these Supreme Court things cleared up.</s>ANDY SERWER, EDITOR AT LARGE, "FORTUNE" MAGAZINE: And you know of course, Rehnquist was expected. Then we had the Sandra Day O'Connor deal. And Sandra Day of course is going to be the bigger deal because she's a moderate. Rehnquist replaced by W. When W. replaces W., he'll do a conservative. But when he replaces a moderate with a conservative, that will shift the courts.</s>ALLEN WASTLER, MANAGING EDITOR, MONEY.COM: And you are seeing a lot of hang wringing going on, you know, among Democrats, and the liberal side of the country saying, oh no, this is -- but I sort of took heart from the fact that the White House is telling its Republican allies, some of the more hard-line ones, to tone down the rhetoric. You know, let's have a nice, straightforward debate here ...</s>SERWER: Jack's skeptical.</s>WASTLER: Which maybe, Jack, we can have a nice civil debate --</s>SERWER: Can't we all just get along here?</s>WASTLER: -- everybody can live with.</s>CAFFERTY: I will just point out the history of the previous five years when it comes to President Bush and his absolute unwillingness to compromise his ideals and his view of the world. He is a conservative. And I don't suspect that anything's going to change when it comes to nominating people to fill the vacancies on the court.</s>SERWER: You hear Judge Stevens also may be considering retirement as well. Sea change could happen.</s>CAFFERTY: Could change the entire country here in the next year or so. All right, we'll see what happens. This week's terrorist attacks in Britain tested the nerve of the world's financial markets. The London Stock Exchange stayed open for business despite the attacks. The index fell sharply but then bounced back by the close. Here in New York, the Dow opened down about 90 points. But by the end of the day, was actually on the plus side of things, as was the S&P; 500 and the NASDAQ. For a look at how that contrasts with past attacks -- you remember the one in Madrid and of course the ones here in the United States on 9/11 -- and see what it can say about the future, we're joined by Greg Valliere who is the chief strategist with the Stanford Washington Research Group. Greg, nice to see you.</s>GREG VALLIERE, CHIEF STRATEGIST, STANFORD WASHINGTON RESEARCH GROUP: Great to see you, Jack.</s>CAFFERTY: What do you make of the way the markets reacted to the attacks in London?</s>VALLIERE: I think people in the markets essentially got it right; this was not a repeat of 9/11. It was horrific, but not a repeat. Maybe more importantly I think people in markets realize that when something like this happens, you get an immediate reaction from the fixed-income market. Interest rates go down sharply. And I think that's a great tradeoff that keeps the equities markets in some balance.</s>SERWER: Greg, politically what about the UK and the British government and British people, more importantly, do you think that they will look to capitulate -- perhaps is the right word -- as the Spanish people did, and reelect -- or throw Blair out, or try to force him to withdraw troops from Iraq?</s>VALLIERE: That's a great question. I would be more concerned about the Continent, where these terrorists are making a very unabashed message to people there, that they need to pull out of any support for the U.S. or what's going on in Iraq. I think the Brits are -- have a backbone. I question about the Continent. If you look at the demographics of the Continent, especially say France and other countries, there are thousands and thousands of these fanatics who are living right in those countries.</s>WASTLER: Greg, continuing the political ramification, what about President Bush? Does he get a bounce out of this? Usually, these situations give him a little traction and maybe help him with some of his proposals and his popularity.</s>VALLIERE: It's hard to address something that cynical right after this tragedy. But this being Washington, obviously people have. And I think that the voters showed last November that the president has very high ratings in this area and I wouldn't be shocked if his numbers go up by three or four points. That said, does this mean his agenda is suddenly going to sail through Congress? No way. I still think the basics still apply. Things like Social Security are on life support. I don't think this will fundamentally lift his agenda. And the other thing -- very quickly -- that will dominate all the news, as you guys discussed, is going to be Supreme Court nominees. I don't think a slightly higher job rating will make that much of a difference.</s>CAFFERTY: You alluded to the Continent. Let's talk about Misters Chirac and Schroeder, and how they may react or choose not to react to the events in London. Is this likely to widen the rift between France and Germany and the United States and England, or might it push those guys toward the west a little?</s>VALLIERE: Well they're both lame ducks, as you know, to one extent or another, I think. And that makes their -- and they have their own internal issue, the weak economy, faltering currency, some scandals in France. So they have their own set of problems as well. That said, I think, again if you look at the demographic makeup on the Continent -- and you and I have talked about this before, Jack -- the only area of society in Western Europe that is having positive birth rates is Muslim. Every other part of society, native Europeans have a negative birth rate. I think there's still going to be some appeasement of these people because there's so many of them.</s>SERWER: Greg switching back to the stock market, do you believe, as I do, that there is a terror discount in stock prices in the United States? After all, the market hasn't gone anywhere since August of 2001. In other words, there's been no growth. If the market had grown 7 or 8 percent since then, we'd have Dow 14,000. A lot of people made much of the resolve of the stock market. But actually, it didn't go down because it's already down. Think that's right?</s>VALLIERE: One of my favorite things, I think just as there was a terrorism premium in oil, I think there's clearly one in the S&P; in the stock market. We all went to bed a couple nights ago thinking, well, the market in the next few months will be affected by the Fed and interest rates, by earnings, by oil prices. And now there's another one that's back, just as it was right after 9/11. And geopolitical risk, which cannot be quantified, is now a real factor, and a negative, I think, for the overall stock market.</s>WASTLER: Greg, you mention the Fed. Do you think events like what happened this week in London factor into their thinking about what to do on interest rates?</s>VALLIERE: I do, if they're repeated, if this is just a -- if 7/7 was just a one-time incident and there are no repeats, probably not. But God forbid, if there are more incidents, I think it has to make the Fed more dovish. I think that the clear play here is that if we have more terrorism, interest rates could go even lower.</s>CAFFERTY: What about the vulnerability that remains here in the United States, Greg? Our ports are vulnerable, our transportation, infrastructure is vulnerable. We haven't done, if you ask members of the 9/11 Commission, nearly enough in the wake of the attacks on September 11 to protect this country against future acts of terrorism. Now they're blowing up the transportation infrastructure in the city of London during rush hour. Do you expect it might ignite any sort of sense of urgency in the United States to do little more than pay lip service to being safe here?</s>VALLIERE: Absolutely, Jack. For all of us who are on trains a lot, I'm on Amtrak all the time. I just shudder to think how easy it could be to get something on an Amtrak train, or get something on the New York City subway. So I feel very confident in predicting over the next few weeks there is going to be a real intense reexamination of whether these are very, very soft targets, which I think they are.</s>SERWER: Greg, is it really appeasement, though? We're talking about the British having a backbone. I mean to withdraw from Iraq and turn over the security to the United Nations, I mean, and how would the markets react to that? Wouldn't that be seen as a positive?</s>VALLIERE: No. I don't think so. I think the message to al Qaeda and to Bin Laden, people like that, would be that at the first sign of blood we get a little squeamish. I'm sorry, I think that was one of the messages, accurately or not that came out of Madrid. I think this would be the exact wrong time to send any kind of signal like that. That might even give them more of an incentive to do even more.</s>CAFFERTY: Interesting stuff. The story that unfolds going into the next weeks and months could become even more so. Greg Valliere, thank you for joining us. Always a pleasure to get your thoughts on these things. Chief strategist, Stanford Washington Research Group, from the nation's capital, thanks again.</s>VALLIERE: You bet.</s>CAFFERTY: When we come back on IN THE MONEY, making nice or making a difference? We'll look at whether a G-8 Summit adds up to anything more than just another photo op. Plus, building a bigger safety net as United Healthcare hooks up with Pacific Care. See what the market makes of the deal. And would you open your wallet for these people? Find out if celebrities really help when it's time to raise money for a cause.