From 911myths
Claim
One of the most commonly repeated claims of 9/11 foreknowledge is based on the financial trading that took place just before the attacks. Put options, essentially bets that a share price will fall, were placed in unusually high levels just before 9/11 on both airlines involved in the attack, as well as major companies based in the WTC, insurers that had underwritten the cover to the World Trade Centre complex, and others. When the stock exchange reopened, all these share prices had plummeted, and the buyers made huge profits.
Mike Ruppert was one of the first people to link the story to the US government, with an article entitled "Suppressed Details of Criminal Insider Trading Lead Directly into the CIA’s Highest Ranks: CIA Executive Director “Buzzy” Krongard managed firm that handled “PUT” options on United Airline Stock":
(Go follow the link to read the whole thing).
The story also appeared in the mainstream media a week or so after the attacks:
The Chicago Board Options Exchange, the world's largest options market, said Tuesday it is investigating reports of unusual trading activity before last week's terrorist attacks in New York and Washington.
The statement comes amid widespread international efforts by investigators and regulators to determine whether terrorists tried to profit from stock and option trading ahead of the attacks on the World Trade Center and the Pentagon.
In the days before the attacks, unusually high numbers of put options were purchased for the stocks of AMR Corp. and UAL Corp., the parent companies of American Airlines and United Airlines, which each had two planes hijacked. There was no such trend involving other carriers.
A put option is a contract that gives a holder the right to sell an asset at a specified price before a certain date.
On Sept. 6-7, when there was no significant news or stock price movement involving United, the Chicago exchange handled 4,744 put options for UAL stock, compared with just 396 call options -- essentially bets that the price will rise. On Sept. 10, an uneventful day for American, the volume was 748 calls and 4,516 puts, based on a check of option trading records.
On Monday, the first day of trading following the attacks, shares of AMR fell 39 percent, and UAL stock plunged 42 percent. Other airline shares also were sharply lower and most rebounded modestly Tuesday.
"I saw put-call numbers higher than I've ever seen in 10 years of following the markets, particularly the options markets," John Kinnucan, a principal of Broadband Research, an independent telecommunications research firm, told the San Francisco Chronicle. "When one sees this type of activity, the first thing one does is ask oneself, 'What is the explanation? What are people worried about?' "
According to a report in The Wall Street Journal, the SEC said it had received information from various U.S. agencies Friday about possible trading by terrorists in industries affected by the bombing, including insurance and the airlines, and also about possible put-option or futures-index trading.
On Monday, Germany's stock market regulator said it was looking into claims of suspicious short-selling just before the Sept. 11 attacks. Washington and several other governments have identified Osama bin Laden as a prime suspect...
The SEC has received information from other U.S. regulators about possible suspicious trading earlier this month in put options, according to a government source.
The Chicago exchange trades options on the stocks of about 1,400 companies along with 38 stock-based indexes, including the Dow Jones industrial average, the S&P 500 and the Nasdaq 100.
All nose-dived in the aftermath of the attacks, which would have meant substantial profits for anyone who had bet on their decline by buying put options or through short-selling. Short-sellers borrow stock and sell it in anticipation of buying it back later at a lower price.
http://911research.wtc7.net/cache/sept11/cjonline_oddjump.html
The suggestion is that these purchases were unusually targeted at companies that would directly suffer from the attacks, then. Volumes were far higher than normal, and there was no other news that might explain why people might think these particular share prices would fall. Therefore, it's claimed, the put option buyers must have had some level of foreknowledge of the 9/11 attacks.
The Commission account
The 9/11 Commission Report made only brief reference to the put options, and even that was hidden away in a footnote:
We've frequently seen the Commission criticised for this, however it's not the only reference they made to the issue. There's much more extensive coverage in Appendix B of the Commision's Terrorist Financing Staff Monograph, which we include here in full.
Terrorist Financing Staff Monograph
Appendix B: Securities Trading
This appendix describes the staff and U.S. government investigations into the issue of whether anyone with foreknowledge of the 9/11 attacks profited through securities trading, and explains the conclusion in the Commission’s final report that extensive government investigation has revealed no evidence of such illicit trading.
Almost since 9/11 itself, there have been consistent reports that massive “insider trading” preceded the attacks, enabling persons apparently affiliated with al Qaeda to reap huge profits. The Commission has found no evidence to support these reports. To the contrary, exhaustive investigation by federal law enforcement, in conjunction with the securities industry, has found no evidence that anyone with advance knowledge of the terrorist attacks profited through securities transactions.
Commission Staff Investigation
Commission staff had unrestricted access to the U.S. government officials who led and conducted the investigation into securities trading in advance of 9/11. In addition to interviewing the key personnel, Commission staff reviewed the nonpublic government reports summarizing the investigative results as well as backup data, including spreadsheets, memoranda and other analyses, and reports of interviews with traders, securities industry participants, and other witnesses. We obtained and reviewed the reports of investigations done by certain major nongovernmental securities industries bodies who share responsibility with the government for monitoring securities trading in U.S. markets, including the New York Stock Exchange and the National Association of Securities Dealers Regulation, and interviewed witnesses from a key private-sector entity. Commission staff also reviewed information provided by foreign securities regulators, interviewed German law enforcement officials, and interviewed U.S. law enforcement personnel regarding their contacts with their foreign counterparts on securities trading.
In addition, Commission staff drew on its review of extensive classified intelligence concerning al Qaeda and how it manages its operations and its finances, as well as debriefings of al Qaeda detainees, including 9/11 plot leader Khalid Sheikh Mohammed and other plot participants. This information proved useful in evaluating how closely held al Qaeda kept the 9/11 operation and the likelihood it would seek to profit from the attacks through securities trading.
The U.S. Government Investigation of Trading in the United States
The Securities and Exchange Commission (SEC) and the FBI, with the involvement of the Department of Justice, conducted the investigation of the allegation that there was illicit trading in advance of 9/11; numerous other agencies played a supporting role. 166
The SEC’s chief of the Office of Market Surveillance initiated an investigation into pre9/11 trading on September 12, 2001. At a multi-agency meeting on September 17, at FBI headquarters, the SEC agreed to lead the insider trading investigation, keeping the FBI involved as necessary. The Department of Justice assigned a white-collar crime
prosecutor from the U.S. Attorney’s Office in Brooklyn to work full-time on the investigation; he relocated to Washington, D.C., on September 18.
The SEC undertook a massive investigation, which at various times involved more than 40 staff members from the SEC’s Division of Enforcement and Office of International Affairs. The SEC also took the lead on coordinating intensive investigations by the self-regulatory organizations (SROs) that share responsibility for monitoring the U.S. securities markets, including, among others, the New York Stock Exchange, the American Stock Exchange, the National Association of Securities Dealers Regulation, and the Chicago Board Options Exchange. The investigation focused on securities of companies or industries that could have been expected to suffer economically from the terrorist attacks. Thus, the investigators analyzed trading in the following sectors: airlines, insurance, financial services, defense and aerospace, security services, and travel and leisure services, as well as companies with substantial operations in the area of the World Trade Center. The investigation also included broad-based funds that could have been affected by a major shock to the U.S. economy. Ultimately, the investigators analyzed trading in 103 individual companies and 32 index or exchange-traded funds and examined more than 9.5 million securities transactions.
The investigators reviewed any trading activity that resulted in substantial profit from the terrorist attacks. Investments that profited from dropping stock prices drew great scrutiny, including short selling167 and the purchase of put options.168 The SEC has long experience in investigating insider trading violations, which can involve the use of these techniques by those who know of an impending event that will make stock prices fall.
The investigators also sought to determine who profited from well-timed investments in industries that benefited from the terrorist attacks, such as the stock of defense and security companies, and who timely liquidated substantial holdings in companies likely to suffer from the attacks.
The SEC investigators reviewed voluminous trading records to identify accounts that made trades that led to profits as a result of the attacks. The SEC followed up on any such trades by obtaining documents and, where appropriate, interviewing the traders to understand the rationale for the trades. The SEC also referred to the FBI any trade that
resulted in substantial profit from the attacks—a much lower threshold for a criminal referral than it would normally employ. Consequently, the FBI conducted its own independent interviews of many of the potentially suspicious traders. The SROs, which have extensive market surveillance departments, played a key role in the SEC investigation by providing information and, in some cases, detailed reports to the commission. In addition, the SEC directly contacted 20 of the largest broker-dealers and asked them to survey their trading desks for any evidence of illicit trading activity. It also asked the Securities Industry Association—the broker-dealer trade group—to canvass its members for the same purpose.
The SEC investigation had built-in redundancies to ensure that any suspicious trading would be caught. For example, the SEC reviewed massive transaction records to detect any suspicious option trading and also obtained reports, known as the Large Option Position Reports and Open Interest Distribution Reports, that identified the holders of substantial amounts of options without regard to when those options were purchased. Similarly, to ensure full coverage, the SEC obtained information from a number of entities that play a role in facilitating short sales. Between these efforts, the work of the SROs, and the outreach to industry, the chief SEC investigator expressed great
confidence that the SEC investigation had detected any potentially suspicious trade.
No Evidence of Illicit Trading in the United States
The U.S. government investigation unequivocally concluded that there was no evidence of illicit trading in the U.S. markets with knowledge of the terrorist attacks. The Commission staff, after an independent review of the government investigation, has discovered no reason to doubt this conclusion.
To understand our finding, it is critical to understand the transparency of the U.S. markets. No one can make a securities trade in the U.S. markets without leaving a paper trail that the SEC can easily access through its regulatory powers. Moreover, broker-dealers must maintain certain basic information on their customers. It is, of course, entirely possible to trade through an offshore company, or a series of nominee accounts and shell companies, a strategy that can make the beneficial owner hard to determine. Still, the investigators could always detect the initial trade, even if they could not determine the beneficial owner. Any suspicious profitable trading through such accounts would be starkly visible. The investigators of the 9/11 trades never found any blind alleys caused by shell companies, offshore accounts, or anything else; they were able to investigate the suspicious trades they identified. Every suspicious trade was determined to be part of a legitimate trading strategy totally unrelated to the terrorist attacks.
Many of the public reports concerning insider trading before 9/11 focused on the two airline companies most directly involved: UAL Corp., the parent company of United Airlines, and AMR Corp., the parent company of American Airlines. Specifically, many people have correctly pointed out that unusually high volumes of put options traded in UAL on September 6–7 and in AMR on September 10.169
When the markets opened on September 17, AMR fell 40 percent and UAL fell 43 percent. The suspicious options trading before the attacks fueled speculation that al Qaeda had taken advantage of the U.S. markets to make massive profits from its murderous attacks. The allegations had appeal on their face—just as al Qaeda used our sophisticated transportation system to attack us, it appeared to have used our sophisticated markets to finance itself and provide money for more attacks. But we conclude that this scenario simply did not happen.
Although this report will not discuss each of the trades that profited from the 9/11 attacks, some of the larger trades, particularly those cited in the media as troubling, are illustrative and typical both of the nature of the government investigation into the trades and of the innocent nature of the trading. The put trading in AMR and UAL is a case in point: it appeared that somebody made big money by betting UAL and AMR stock prices were going to collapse, yet closer inspection revealed that the transactions were part of an innocuous trading strategy.
The UAL trading on September 6 is a good example. On that day alone, the UAL put option volume was much higher than any surrounding day and exceeded the call option volume by more than 20 times—highly suspicious numbers on their face.170 The SEC quickly discovered, however, that a single U.S. investment adviser had purchased 95 percent of the UAL put option volume for the day. The investment adviser certainly did not fit the profile of an al Qaeda operative: it was based in the United States, registered with the SEC, and managed several hedge funds with $5.3 billion under management. In interviews by the SEC, both the CEO of the adviser and the trader who executed the trade explained that they—and not any client—made the decision to buy the put as part of a trading strategy based on a bearish view of the airline industry. They held bearish views for a number of reasons, including recently released on-time departure figures, which suggested the airlines were carrying fewer passengers, and recently disclosed news by AMR reflecting poor business fundamentals. In pursuit of this strategy, the adviser sold short a number of airline shares between September 6 and September 10; its transactions included the fortunate purchase of UAL puts. The adviser, however, also bought 115,000 shares of AMR on September 10, believing that their price already reflected the recently released financial information and would not fall any further. Those shares dropped significantly when the markets reopened after the attacks. Looking at the totality of the adviser’s circumstances, as opposed to just the purchase of the puts, convinced the SEC that it had absolutely nothing to do with the attacks or al Qaeda. Still, the SEC referred the trade to the FBI, which also conducted its own investigation and reached the same conclusion.
The AMR put trading on September 10 further reveals how trading that looks highly suspicious at first blush can prove innocuous. The put volume of AMR on September 10 was unusually high and actually exceeded the call volume by a ratio of 6:1—again, highly suspicious on its face. The SEC traced much of the surge in volume to a California investment advice newsletter, distributed by email and fax on Sunday, September 9, which advised its subscribers to purchase a particular type of AMR put options. The SEC interviewed 28 individuals who purchased these types of AMR puts on September 10, and found that 26 of them cited the newsletter as the reason for their transaction. Another 27 purchasers were listed as subscribers of the newsletter. The SEC interviewed the author of the newsletter, a U.S. citizen, who explained his investment strategy analysis, which had nothing to do with foreknowledge of 9/11. Other put option volume on September 10 was traced to similarly innocuous trades.
Another good example concerns a suspicious UAL put trade on September 7, 2001. A single trader bought more than one-third of the total puts purchased that day, establishing a position that proved very profitable after 9/11. Moreover, it turns out that the same trader had a short position in UAL calls—another strategy that would pay off if the price
of UAL dropped. Investigation, however, identified the purchaser as a well-established New York hedge fund with $2 billion under management. Setting aside the unlikelihood of al Qaeda having a relationship with a major New York hedge fund, these trades looked facially suspicious. But further examination showed the fund also owned 29,000 shares of
UAL stock at the time—all part of a complex, computer-driven trading strategy. As a result of these transactions, the fund actually lost $85,000 in value when the market reopened. Had the hedge fund wanted to profit from the attacks, it would not have retained the UAL shares.
These examples were typical. The SEC and the FBI investigated all of the put option purchases in UAL and AMR, drawing on multiple and redundant sources of information to ensure complete coverage. All profitable option trading was investigated and resolved. There was no evidence of illicit trading and no unexplained or mysterious trading. Moreover, there was no evidence that profits from any profitable options trading went uncollected.171
The options trading in UAL and AMR was typical of the entire investigation. In all sectors and companies whose trades looked suspicious because of their timing and profitability, including short selling of UAL, AMR, and other airline stocks, close scrutiny revealed absolutely no evidence of foreknowledge. The pattern is repeated over and over. For example, the FBI investigated a trader who bought a substantial position in put options in AIG Insurance Co. shortly before 9/11. Viewed in isolation, the trade looked highly suspicious, especially when AIG stock plummeted after 9/11. The FBI found that the trade had been made by a fund manager to hedge a long position of 4.2 million shares in the AIG common stock. The fund manager owned a significant amount of AIG stock, but the fund had a very low tax basis in the stock (that is, it had been bought long ago and had appreciated significantly over time). Selling even some of it would have created a massive tax liability. Thus, the fund manager chose to hedge his position through a put option purchase. After 9/11, the fund profited substantially from its investment in puts. At the same time, however, it suffered a substantial loss on the common stock, and overall lost money as a result of the attacks.
In sum, the investigation found absolutely no evidence that any trading occurred with foreknowledge of 9/11. The transparency of the U.S. securities markets almost ensures that any such trading would be detectable by investigators. Even if the use of some combination of offshore accounts, shell companies, and false identification obscured the
identity of the traders themselves, the unexplained trade would stand out like a giant red flag. The absence of any such flags corroborates the conclusion that there is no evidence any such trading occurred. Indeed, the leaders of both the SEC and FBI investigations into pre-9/11 trading expressed great confidence in this conclusion.
International Investigation
There is also no evidence that any illicit trading occurred overseas. Through its Office of International Affairs, the SEC sought the assistance of numerous foreign countries with active securities markets. The FBI also engaged with foreign law enforcement officials about overseas trading. There are two issues to consider with respect to the international investigation: overseas trading in U.S. securities and trading of foreign securities in overseas markets.
Trading of U.S. securities overseas
The SEC sought the assistance of countries where there was significant trading of U.S. securities. Each of these countries had previously entered into information sharing agreements with the SEC to cooperate in securities investigations, and each willingly cooperated in the 9/11 investigation. According to the SEC, there is generally little trading of U.S. securities overseas, since U.S. securities trade primarily in U.S. markets. Thus, unusual trading in U.S. securities would not have been very hard for foreign regulators to detect. Each country the SEC contacted conducted an investigation and reported back to the SEC that there was no trading in U.S. securities in their jurisdiction that appeared to have been influenced by foreknowledge of the 9/11 attacks.
The foreign investigators also helped investigate suspicious trading in the U.S. from offshore accounts. For example, the SEC investigation revealed that shortly before 9/11 an offshore account had taken a short position in a fund that tracked one of the major U.S. market indices—an investment that profited when the U.S. market declined. After 9/11, the offshore investor closed out the position, reaping $5 million in profit. The SEC’s Office of International Affairs solicited help from a European country to investigate further. Although this trade was highly suspicious on its face, the European country’s investigation revealed that this investor was an extremely wealthy European national who often speculated by taking short positions in the U.S. market. In fact, the same investor had employed this strategy to lose $8 million in the six months preceding 9/11.
Trading of foreign securities
There is also no evidence that insider trading took place in the stock of any foreign company. The SEC asked its foreign counterparts to investigate trading in securities that trade primarily on foreign markets subject to foreign regulation. Indeed, a number of companies that suffered serious economic losses from the 9/11 attacks were foreign
companies, which traded mainly on foreign markets. In particular, the insurance companies with the largest potential losses included Munich Reinsurance Co., Swiss Reinsurance Co., and Allianz AG, all foreign-based companies that primarily traded overseas.172 In addition to the SEC, the FBI team investigating the financial aspects of the 9/11 plot frequently dealt with foreign law enforcement officials after 9/11 and raised the trading issue.173 Neither the SEC nor the FBI was informed of any evidence of any illicit trading in advance of 9/11 in any foreign securities.
Shortly after 9/11, Ernst Welteke, president of the German Central Bank, made a number of public statements that insider trading occurred in airline and insurance company stock, and also in gold and oil futures. These preliminary claims were never confirmed. In fact, German officials publicly backtracked fairly soon after Mr. Welteke’s statement was issued. On September 27, a spokesman for the German securities regulator, BAWe (Bundesaufsichtsamt für den Wertpapierhandel), declared that while the investigation was continuing, “there is no evidence that anyone who had knowledge of the attacks before they were committed used it to make financial transactions.”174 On December 3, 2001, a spokesman for the BAWe said its investigation had revealed no evidence of illicit trading in advance of 9/11 and that the case remained open pending new information. The spokesman said separate investigations by state authorities had also yielded no information and had been closed. 175
Commission staff interviewed German law enforcement officials who said that exhaustive investigation in Germany revealed no evidence of illicit trading. Moreover, both SEC and FBI officials involved in the trading investigation told the Commission staff that German investigators had privately communicated to them that there was no evidence of illicit trading in Germany before 9/11. The FBI legal attaché in Berlin forwarded a lead to the German BKA (Bundeskriminalamt), which reported back that the trading allegations lacked merit. It appears, then, that Welteke’s initial comments were simply ill-considered and unsupported by the evidence.176
Other investigation corroborates the conclusion of no illicit trading
Since 9/11, the U.S. government has developed extensive evidence about al Qaeda and the 9/11 attacks. The collected information includes voluminous documents and computers seized in raids in Afghanistan and throughout the world. Moreover, the United States and its allies have captured and interrogated hundreds of al Qaeda operatives and
supporters, including the mastermind of the 9/11 plot and the three key plot facilitators. No information has been uncovered indicating that al Qaeda profited by trading securities in advance of 9/11. To the contrary, the evidence—including extensive materials reviewed by Commission staff—all leads to the conclusion that knowledge of the plot was closely held by the top al Qaeda leadership and the key planners. It strains credulity to believe that al Qaeda would have jeopardized its most important and secretive operation or any of its key personnel by trying to profit from securities speculation.
Footnotes
166. The SEC is an independent federal agency entrusted with enforcing the federal securities laws. Its
Division of Enforcement has extensive experience in investigating insider trading. Because the SEC lacks
authority to bring criminal cases, it regularly works jointly with the FBI and DOJ, as it did in this case, on
potentially criminal securities law violations.
167. Short selling is a strategy that profits from a decline in stock price. A short seller borrows stock from a
broker dealer and sells it on the open market. At some point in the future, he closes the transaction by
buying back the stock and returning it to the lending broker dealer.
168. A put option is an investment that profits when the underlying stock price falls. A put option contract
gives its owner the right to sell the underlying stock at a specified strike price for a certain period of time.
If the actual price drops below the strike price, the owner of the put profits because he can buy stock
cheaper than the price for which he can sell it. By contrast, a call option contract is an investment that
profits when the underlying stock price rises. A call option contract gives its owner the right to buy the
underlying stock at a specified strike price for a certain time period. People illicitly trading on inside
information often have used options because they allow the trader to leverage an initial investment, so that
a relatively small investment can generate huge profits.
169. See, e.g., September 18, 2001 Associated Press Report.
170. A high ratio of puts to calls means that on that day far more money was being bet that the stock price
would fall than that the stock price would rise. Such a ratio is a potential indicator of insider trading—
although it can also prove to have entirely innocuous explanations, as in this case.
171. The press has reported this claim, and the allegation even found its way into the congressional testimony concerning terrorist financing of a former government official. The government investigation would have detected such traders because the investigators focused on people who purchased profitable positions— regardless of when or whether or when they closed out the position. Moreover, officials at the SEC and the
Options Clearing Corporation, a private entity that processes options trading, pointed out that any profitable
options positions are automatically exercised upon the expiration date unless the customer explicitly
directed otherwise. Any direction not to exercise profitable options is a highly unusual event, which the
OCC double-checks by contacting the broker who gave them such instruction. The OCC personnel had no
recollection of any such contacts after 9/11.
172. According to the SEC’s Chief, Market Surveillance, the countries with the most significant relevant
trading of foreign corporations stock were the UK and Germany. The UK quickly and publicly reported it
had found no illicit trading. See e.g., J. Moore, The Times, Bin Ladin did not Deal (October 17, 2001)
(Chairman of Financial Services Authority reported that investigation failed to reveal evidence of irregular
share dealings in London in advance of 9/11). Other countries publicly reported similar findings. See e.g.,
Associated Press Worldstream, Suspicion dispelled of insider trading in KLM shares before September 11
attacks (reporting conclusion of Dutch government investigation that sharp drop in share prices of the
national airline days before 9/11 were not caused by people who knew of terrorist attacks).
173. The chief of the FBI team also raised the issue with CIA and asked it to be alert for any intelligence on
illicit trading; he received no such reports from the CIA.
174. Agence France Presse (Sept. 27, 2001).
175. See Australian Financial Review (Dec 3, 2001).
176. The SEC investigated trading of American Depository Receipts (ADRs) in foreign companies. ADRs are receipts issued by a U.S. bank for the shares of a foreign corporation held by the bank. ADRs publicly trade on U.S. markets. This investigation revealed no illicit trading.
http://www.9-11commission.gov/staff_statements/911_TerrFin_App.pdf
The Commission reported no reason for suspicion, then. And as an example explain that the purchaser of the United Airlines put options also bought 115,000 American Airlines shares on September 10, not a good sign of foreknowledge. They provide few other details, though, and so many 9/11 researchers continue to claim that only foreknowledge of the attacks could explain the put options. But in reality there were several other reasons why investors might have been gloomy about the future.
General economic context
The purchase of high numbers of put options indicates a belief that share prices are about to fall. It's sometimes argued that this indicates foreknowledge of 9/11 because there was no other reason to expect falling prices at the time:
However, the "no news" line isn't exactly telling you the whole truth.
Here's the Washington Post discussing share prices on September 1 2001, for instance:
The Washington Post
September 1, 2001 Saturday
Final Edition
Stocks Rise but End Week Sharply Lower
BYLINE: Associated Press
SECTION: FINANCIAL; Pg. E02
DATELINE: NEW YORK Aug. 31
Wall Street ended a terrible week with a gain today, but the modest advance only underscored how fragile and unruly the stock market has become.
The gain wasn't enough to bring the Dow Jones industrials back above 10,000, one day after the blue-chip average fell below that mark for the first time since April 9.
An unexpectedly strong report on factory orders sent stocks surging early in the session, but the good news was quickly overshadowed by investors' concerns about the lackluster economy and disappointing company profits.
"There is no news here today that would say we're about to reverse this thing on a permanent basis," said Bill Barker, investment strategy consultant at Dain Rauscher in Dallas.
The Dow, up more than 100 points in the early going, closed 30.17 higher at 9949.75. For the week, it was down 473.42, or 4.5 percent.
Broader stock indexes also were higher. The Nasdaq composite index rose 13.75, to 1805.43, while the Standard & Poor's 500-stock index edged up 4.55 to 1133.58.
For the week, the Nasdaq was down 111.37, or 5.8 percent, while the S&P 500 sank 51.35, or 4.3 percent.
Today's listless performance followed four straight days of declines that sent the Dow more than 500 points lower or nearly 5 percent. On Thursday, the Dow dropped 1.7 percent after several bad economic and corporate reports.
The fluctuations during today's trading were "just vacillation," said Jon Brorson, director of equities at Northern Trust in Chicago. "Investors are in an 'I don't want to shoot until I see the whites of their eyes' mode."
Concerned about the market's previous sell-offs, investors have been reluctant to buy because they sense no immediate possibility of a recovery in share prices. They're also waiting for a solid string of news from the government or companies that the economy may be ready for a turnaround.
"We need tangible evidence of a bottom to restore confidence," Brorson said.
The Commerce Department report today that factory orders rose 0.1 percent gave investors a reason to snap up bargains, but experts said the uptick was little more than temporary burst of buying.
Among Dow component stocks, Alcoa rose 63 cents, to $ 38.12, and J.P. Morgan was up 16 cents, to $ 39.40. IBM dropped 41 cents, to $ 99.95, and Hewlett-Packard fell 19 cents, to $ 23.21.
Overall, August was a bad month for investors, with the Dow 560.26 lower. The index hit its high point of the month on Aug. 2, closing at 10,551.18, but ended the month down 5.3 percent.
- The New York Stock Exchange composite index fell 1.74, to 587.84; the American Stock Exchange index rose 2.42, to 873.40; and the Russell index of 2,000 small stocks rose 0.50, to 468.56.
- Advancing issues outnumbered declining ones by about 4 to 3 on the NYSE, where trading volume fell to 949.5 million shares, from 1.17 billion on Thursday. On the Nasdaq, advancers outnumbered decliners by 5 to 4 and volume totaled 1.16 billion shares, down from 1.7 billion.
- The price of the Treasury's benchmark 10-year note fell $ 2.19 per $ 1,000 invested, and its yield rose to 4.83 percent, from 4.80 percent late Thursday.
- The dollar fell against the Japanese yen and rose against the euro. In late New York trading, a dollar bought 118.79 yen, down from 119.40 yen late Thursday, and a euro bought 91.23 cents, down from 91.61 cents.
- Light, sweet crude oil for October delivery settled at $ 27.20 a barrel, up 65 cents, on the New York Mercantile Exchange.
- Gold for current delivery fell on the Commodity Exchange division of the New York Mercantile Exchange to $ 274.40 a troy ounce from $ 275.40 on Thursday.
An improvement at the end of the week, but people generally think it's a blip, with the Dow Jones down 4.5% overall, and that's following a 5.3% fall in August.
General pessimism continued into the following week:
Cox News Service
September 6, 2001 Thursday
Markets head lower - again
BYLINE: Tom Walker
SECTION: Financial Pages
DATELINE: ATLANTA
Unless the stock market goes into reverse, the major indexes appear headed for new bear-market lows. Investors have already lost more than $2 trillion in market value since the peak of the market's spring rally.
Standard & Poor's 500-stock index _ regarded by analysts as the best barometer of market trends _ closed on Thursday within 3.15 points, or 0.3 percent, of its 52-week low reached on April 4.
The technology-heavy Nasdaq composite index, which has suffered the biggest bear market losses, and the blue chip Dow Jones industrial average of mostly "old economy" stocks, are both within about 4 percent of their 52-week lows of five months ago.
"I think the problem you have to wonder about is how far tech stocks can pull things down," said Robert S. Robbins, chief investment strategist for SunTrust Robinson Humphrey Capital Markets.
It would not be unusual for the market to "test" its previous lows and even rebound for awhile.
But if stocks drop below previous lows, analysts believe the indexes could wind up falling much further. Many stocks are still trading at excessively high price-to-earnings valuations, analysts warn.
At some point, the market will hit bottom and begin a sustained rally. But that point appears more elusive than ever, even though some strategists think the worst is over.
"What it comes down to is some fundamental catalyst is needed that gets people to put their money (back in the market)," said Robbins.
That catalyst could be a major improvement in the economy.
Investors will get some idea of how well the economy was doing in August when the government releases the latest unemployment and job growth reports today. Most analysts believe the reports will unemployment than the 4.5 percent of July...
Everyone's waiting for the unemployment figures, then. And unfortunately, they turn out to be worse than expected:
The Washington Post
September 8, 2001 Saturday
Final Edition
On Wall Street, Numbers Crush Recovery Hopes;
Stocks Give Up Last Gains From Tech Boom
BYLINE: Jerry Knight and Krissah Williams, Washington Post Staff Writers
SECTION: A SECTION; Pg. A01
The U.S. stock market plummeted yesterday, continuing a long and painful three-month decline that has reduced prices to levels not seen since before the Internet-inspired market surge almost three years ago.
The Standard & Poor's 500-stock index, a broad-based measure of U.S. stocks regarded by professional investors as the single best measure of the overall market, ended the day at its lowest close since October 1998 as professional traders and mom-and-pop mutual fund investors alike stepped up their selling.
Over the past two weeks, the S&P 500 has declined 8.4 percent in the face of a relentless stream of discouraging news about corporate losses, declining sales, unemployment and the economy, both here and abroad. Stock markets around the globe also continued their steep declines yesterday.
There was widespread agreement among analysts that yesterday's report that the unemployment rate had jumped to 4.9 percent was a reality check for optimists who had been counting on the economy to turn upward.
"The unemployment really was shocking because it was so much greater than expected," said Mary Farrell, senior investment strategist at UBS PaineWebber. "We really are not experiencing the recovery we'd hoped for."
The S&P 500 fell for the ninth time in 10 days. It dropped almost 2 percent yesterday to close at 1085.78, down 20.62 points. The S&P is off 18 percent since the beginning of the year and down 28 percent from a year ago.
Two other broad-based indexes, the New York Stock Exchange composite index and the Wilshire 5000 stock index, plunged past their previous lows for the year. Those indexes hit levels not seen since November 1998.
The Dow Jones industrial average of 30 blue-chip stocks of companies that are considered leaders in their industries yesterday suffered its biggest single-day loss in five months, falling 2.4 percent to 9605.85, its lowest point since April. The Nasdaq composite index recorded its worst close since April 4, down 17.94 points, or 1.1 percent, at 1687.70.
For the last two weeks, investors have taken money out of mutual funds that invest in U.S. stocks. About $ 10.7 billion flowed out of equity funds in the week ending Sept. 5 and $ 6 billion left the prior week, according to TrimTabs, a research group. This is the first time funds have seen back-to-back outflows since the spring, when the market hit its low, according to Thomas McManus, equity strategist for Banc of America Securities.
Market watchers said selling by mutual funds is playing a major role in driving down the markets. When individual investors pull their money out of stock funds, the fund managers are forced to go to Wall Street to unload stocks, which tends to drive prices lower.
The mutual fund withdrawals could signify a sea change in the attitude of small investors, who have largely resisted the urge to bail out even though their stock portfolios and retirement savings accounts have crashed.
"The psychology has changed from 'you have got to be an investor' to 'you better stay away from stock,' " said Christopher Bonavico, portfolio manager at Transamerica Premier Aggressive Growth Fund in San Francisco.
"The psychology is becoming so negative that it is a good time to be a buyer," he added.
But this week there were no signs that Americans are buying stocks -- or much of anything else.
Several announcements led investors to worry about consumer behavior. The Big Three automakers this week all reported that their sales fell in August -- down about 8 percent at Ford and General Motors and 24 percent at DaimlerChrysler's Chrysler division.
In addition, most big retail chains also reported soft August sales -- except for discount chains and warehouse stores, which traditionally benefit when customers concerned about their finances "trade down" by doing their back-to-school shopping at, for instance, Target instead of Hecht's.
The hotel industry -- led by Bethesda-based Marriott -- reported this week that occupancy rates are also falling rapidly, triggering price wars that cut further into lodging industry profits.
Those reports of slowing consumer spending drove down stock prices earlier in the week because of fears that if consumers cut back, the United States could fall into a recession. That fear was magnified yesterday by the stunning increase in the jobless numbers to the highest level in almost four years.
"Unemployment figures have a significant psychological impact on people's propensity to consume," explained Eric Leo, chief investment officer for Allied Investment Advisors in Baltimore.
"The unemployment numbers came in certainly above what Wall Street was expecting," Leo said. "It's obviously showing signs that the economy is very sluggish. Whether it means we are going into a recession or not, it is still too soon to tell."
With business spending stagnant, consumers are the only bulwark between the United States and a recession, said William Meehan, chief market analyst of Cantor Fitzgerald. Investors are concerned that "if the consumer gets riled by job layoffs and they pull back or start to pay off some debt, we'll go to a full-blown recession."
The market was further jolted by more signs that corporations remain reluctant to make big investments.
The stocks of a pair of prominent Washington-area high-tech companies were whacked recently because their customers are holding back.
The shares of Manugistics Group Inc. of Bethesda fell 35 percent this week after the company said that its quarterly sales would be only about $ 70 million instead of the expected $ 90 million and, instead of a profit, it will post a loss. Manugistics makes software that companies use to do business with each other over the Internet.
Ciena Corp., of Linthicum, which manufactures fiber-optic communications hardware, warned of a similar slowdown in sales and saw its stock plunge 19 percent this week.
More disappointing sales and earnings are expected to be announced by companies issuing interim reports on the third quarter of the year, which for many corporations ends Sept. 30.
Yesterday's jobs report and the week's other pessimistic signals produced speculation that the Federal Reserve may be prompted to cut interest rates again soon. Meehan of Cantor Fitzgerald said that although that might help the economy, it's unlikely to boost the stock market. "There's no reason for me to expect that a move to the upside will be sustained even if the Fed cuts rates," he said.
Expectation of Fed rate cuts caused the bond market to rally. Prices of two-year U.S. Treasury notes rose as their yields, which go down when prices go up, declined to their lowest level in history, 3.51 percent, from 3.63 percent at Thursday's close. Similarly, yields on five-year Treasury notes fell to 4.30 percent, their lowest level in more than 40 years.
Eventually tax cuts and lower interest rates will help, said Farrell of UBS PaineWebber.
"We will start seeing positive earnings comparisons and that, combined with interest rates and inflation, should get us back into bull market status," she said. "It is just a waiting game until consumer confidence builds, and it's going to take some better employment figures to have that happen."
This all contributed to a significant decline in share prices just before 9/11.
There were plenty of people who seemed pessimistic about the future, then. And they had specific reasons to be buy put options for some 9/11-related companies, too.
Individual companies
A number of different companies have been mentioned as possible targets of "insider dealing" prior to 9/11. But do these claims stand up to examination? Or might there have been other reasons to buy put options for them?
American Airlines
The American Airlines (AMR) share price had peaked at over $40 at the beginning of 2001. By August 2001 it was closer to $35, though, and on September 10 it had dipped below $30.
The share price had fallen 13% in the month before 9/11, then. Might investors have thought it could fall further, and so be tempted to buy puts?
What’s more, immediately before 9/11 American Airlines released a string of bad news:
Here's how the updates were interpreted in the Dallas Morning News of September 8, 2001:
The Dallas Morning News
September 8, 2001, Saturday
American Airlines Warns Investors of Expected Deficit
BYLINE: By Terry Maxon
AMR Corp. warned investors Friday that it would lose a lot more money this quarter than last quarter and would have a "significant" fourth-quarter deficit.
If the losses materialize as expected, it will mark the first time since 1993 that AMR has posted a full-year loss. It will also be the first time since 1992 that AMR has lost money in every quarter.
AMR, parent of American Airlines Inc. and TWA Airlines LLC, said it was grounding another five Boeing 727s early in response to poor demand. That means that its entire Boeing 727 fleet will be retired by the end of 2002 -- a year ahead of the original schedule.
Since early 2001, AMR said, it has cut its capital spending budget by nearly $ 1.2 million for this year and next.
"We'll continue to take prudent steps consistent with this very tough operating climate," said Tom Horton, AMR's chief financial officer, in a statement. "American's financial strength and flexibility are important assets at a time like this."
AMR made a less drastic warning Aug. 13 when it said it expected to lose money for the third quarter and full year 2001 "if current economic conditions persist."
Airline analyst Ray Neidl with ABN Amro Securities LLC said he was struck by the firmness of AMR's warning Friday, without the ambivalence of earlier warnings.
"They're more or less throwing in the towel and saying they're seeing no changes through the end of the year," Mr. Neidl said.
AMR shares closed down $ 1 to $ 30.15, off 3.2 percent in trading Friday on the New York Stock Exchange, and most other airline shares also finished down.
Mr. Neidl said he expects other airlines to issue similar warnings in the next few weeks as the third quarter shudders to a close.
Most airlines have warned that they have seen a sharp drop in the number of high-dollar business travelers, the ones that buy the most expensive first-class and coach tickets. Continental Airlines Inc. said last week that the revenue it received last month declined 12 to 14 percent per seat mile.
At the same time, high jet fuel prices and rising labor costs have increased the airlines' expenses.
Traffic has remained at or near last year's levels, with leisure travelers lured by continual fare sales this summer. However, Mr. Neidl said he's worried that consumers will quit responding to the fare sales.
"That's when airline profits could really start taking a whack," Mr. Neidl said. "I'm not sure we're going to reach that point, but that's the thing that worries me going forward."
In the second quarter ended June 30, AMR lost $ 105 million before special items, or $ 507 million including write-offs from decreased value of assets, primarily airplanes. It lost $ 43 million in the first quarter.
This year's losses will break a long winning streak for the Fort Worth-based carrier, which earned $ 813 million last year and more than $ 5 billion between 1996 and 2000.
After Friday's warning, airline analyst Michael J. Linenberg of Merrill Lynch Global Securities lowered his estimates for AMR.
Mr. Linenberg, who had predicted a third-quarter loss for AMR of 70 cents a share, now is predicting a loss of $ 1.10 a share. For the fourth quarter, he's predicting the airline will lose $ 1.38 a share, down from 30 cents a share. For the full year excluding the special items, he is predicting a loss of $ 3.45 per share, compared with his previous estimate of $ 1.95 a share. "And I'm not the lowest guy on the Street," Mr. Linenberg said.
Each penny per share represents about $ 46 million to $ 47 million, making his prediction for a full-year loss of around $ 530 million excluding the special items.
Mr. Linenberg said he believes AMR has begun accruing expenses for its new pilots contract, now under negotiation, and for Transport Workers Union contracts that are up for approval by mechanics, ground workers and others.
In addition, the integration of TWA Airlines into American may be more costly than executives planned, further increasing AMR's expenses, he said.
AMR said since last spring, it has decided to retire 41 airplanes early. Its revised estimate is that American and TWA will have the same capacity combined in 2001 as last year, and capacity will decline nearly 1.5 percent next year.
When the year began, American had expected to expand its capacity by 3 percent in 2001.
So this could be "the first time since 1993 that AMR has posted a full-year loss", earnings estimates were being downgraded, and one analyst is worried "that consumers will quit responding to the fare sales", which, if it happens, could make the situation even worse.
And this is the context in which investors may have been considering American Airlines on Saturday September 8th, 2001. The 9/11 Commission tell us that a newsletter recommended buying put options one day later, on the 9th, and the largest number were bought on the 10th. It seems to us that, when you consider the economic situation at the time, and the specific problems faced by AMR, this is an entirely plausible situation. No foreknowledge of 9/11 is required.
United Airlines
United Airlines didn't see the same specific bad news as AMR, however it was already known as a very poor performer within the industry. In fact, as CNNfn pointed out on August 24th 2001, it was losing more money than anyone else:
CNNFN
August 24, 2001 Friday
SHOW: BUSINESS UNUSUAL 08:00 PM Eastern Standard Time
Decline in Business Travel, CNNfn
GUESTS: Marilyn Adams
BYLINE: Kitty Pilgrim
KITTY PILGRIM, CNNfn ANCHOR, BUSINESS UNUSUAL: The economic downturn has put the airline industry in a tail spin. Now the decline in business travel, which according to 'USA Today" accounts for 2/3 of airline revenue, has hurt companies across the board. Have we hit rock bottom? Well our next guest says no. Joining me now from Miami is Marilyn Adams, business travel writer for the money section of "USA Today." And thanks very much for joining us.
MARILYN ADAMS, USA TODAY: Sure, thanks Kitty.
PILGRIM: Really it is quite dire out there in terms of business travel and anyone who works for a company has had the memo, no travel. How far more can (20:08:10) this industry take?
ADAMS: Well, it's pretty bad. There was a survey recently by Delta Air Lines (Company: Delta Air Lines Inc.; Ticker: DAL; URL: http://www.delta- air.com/) that showed that business travel at the top 30 markets is off 19 percent on average. But in some parts of (20:08:20) the country like San Francisco it's off 35 percent and other airlines have said that some companies are cutting their travel budgets by as much as 60 percent. As Gordon Bethune said "they're not (20:08:30) sending poor people to the business meeting any more." Maybe they're not even sending one.
PILGRIM: Yes.
ADAMS: They're doing that business by phone or on the Web. They're find other ways of doing it.
PILGRIM: How much (20:08:40) do you think the industry can absorb? You crunched the numbers of how important business travel is to airlines. How much money are airlines losing on this?
ADAMS: Well, United Airlines (Company: UAL Corporation; Ticker: UAL; URL:
http://www.ual.com) is losing the most (20:08:50) so far this year. There has been one Wall Street estimate that they could lose in excess of $900 million this year which would set a record for any one airline's (20:09:00) loss in a single year. It could be even worse than we saw in the early '90s when we had the Pershing Gulf war coupled with a recession. This is a very tough (20:09:10) time and the airlines have been kind of surprised by how precipitous the cuts have been at companies.
Air Transport World said the losses surprised Wall Street, especially in comparison with their trading the previous year:
And Business Week says that, while there are "some signs of improvement", the airline business is facing major problems:
Business Week
September 3, 2001
SUDDENLY, CARRIERS CAN'T GET OFF THE GROUND
BYLINE: By Michael Arndt in Chicago, with William Symonds in Boston, and bureau reports
SECTION: NEWS; Analysis & Commentary: Airlines; Number 3747; Pg. 36
LENGTH: 966 words
HIGHLIGHT: Slumping business and vacationer demand proves weighty
Travel to and from high-tech hot spots has been particularly hard hit. American Airlines Inc. says business traffic at Austin, Tex., Boston, and San Jose, Calif., is down 15% from a year earlier. At UAL Corp., parent of United Airlines, summer business bookings at San Francisco and Dallas have been down as much as 34% in some months. People are cutting discretionary spending, and unfortunately flying fits into this category, says UAL President Rono J. Dutta. UAL is forecast to lose $ 985 million this year.
More bad news is on the horizon. Vacationers, previously lured by fare sales and cheap tickets, aren't filling as many seats as they did only a month ago. And once the summer ends, tourist traffic tends to dry up. Meanwhile, international traffic -- another high-margin business -- is also weakening, as the economies of Europe, Asia, and Latin America head south. When the general economy catches a cold, the airline industry catches pneumonia, says analyst Kevin C. Murphy of Morgan Stanley Dean Witter & Co.
Demand isn't the only problem. Fuel prices are inching higher, while wages are still climbing. Air Transport's Swierenga figures labor expenses will reach nearly $ 52 billion in 2002, up 15% from the $ 45.3 billion in 2000. He also says airlines are now paying 60% more for fuel than in 1999. REDUCTION. To gain some altitude, the biggest airlines are casting off whatever they can. Almost all are reducing the number of flights they offer. Northwest is in its second round of layoffs this year, with plans to cut 1,625 of its 53,000 workers by year-end. American has lopped $ 200 million from its capital budget this year and plans an additional $ 700 million cut in 2002.
Most radical are restructuring plans at money-losing US Airways Group Inc. Blocked by the Justice Dept. from selling itself to UAL, US Airways wants to remake itself into a lower-cost regional company. It plans to replace 60 big jets with smaller regional ones that should be easier to fill and cheaper to fly.
Still, there are some signs of improvement. Rosenbluth International, a large corporate travel agency, says that in the five-week period ended Aug. 17, corporate bookings were up as much as 20% for 18 of its 25 biggest accounts. And a survey of 200 companies released on Aug. 20 by the National Business Travel Assn. finds that 74% plan to spend the same or more on travel next year compared with 2001. That, of course, wouldn't restore traffic to pre-slowdown levels. Says Rosenbluth CEO Hal F. Rosenbluth,
I don't think the climb out will be anywhere near as vertical as the decline was. Looks like business travelers may be forced to brown-bag it for a while, as the industry struggles to stay aloft.
Even the good news came with qualifications.
That is, at least some of the increase is coming from a very low base.
The end result of all this is that the share price was declining, immediately prior to 9/11.
Put it all together, and some analysts have said there's no other explanation required.
Boeing
Boeing are occasionally referenced as a target for 9/11-related insider trading.
However, what you'll rarely see are any contemporary comments from the Media. For example, the Chicago Tribune published the following on Saturday September 8th:
No surprise about falling share prices here. With airlines already reporting bad news, it would hardly seem surprising if some investors might believe they would fall further still.
British Airways
KLM
Munich Re
Swiss Re
Buzzy Krongard
There's still the question of a "CIA link" to these trades, of course, as discussed by Mike Ruppert:
Ruppert himself pointed out that Krongard left in 1998, though. You might have thought the link expired at that point, but apparently we're supposed to believe it was still significant. Why, though? If, let's say, Government conspirators wanted to engage in a perfectly legal transaction to purchase put options in United and American Airlines, then why would it matter which bank they used? Especially if you're assuming they had enough power to block any investigation? It's not as though the transactions could remain hidden.
Presumably the explanation would be that people at this bank would be willing to help the CIA profit from the deaths of thousands of American citizens. There's not a jot of evidence for that, though, and Ruppert himself points out that Bankers Trust had changed ownership since Krongard's day, being acquired by Deutsche Bank in 1999. Are the Germans in on it, too?
Finally, although some sites quote the trades as all or mostly being linked to AB Brown, you might notice they never post references to prove that. Why? Because if they did you'd read something like this.
The best we have is an unidentified source saying that "at least some" (not "most") of the trades for one of the shares in question (not "all") was made through Alex Brown. If it was so vital to use a "CIA-linked bank" to make these trades, then why not use all of them?
It's clear that, for the conspiracy to stand up, we must make an increasing number of assumptions. That the conspirators needed to use a particular bank, for instance, even though they have the power to cover up just about any investigation. That the conspirators had influence at AB Brown, even though Krongard had left years before. That the report about Deutsche Bank being involved in the first place is accurate, and that the conspirators would be stupid enough to let this information get out, but clever enough to spread the trades across other banks (which presumably must be "CIA-linked", too). Maybe this is all true, but it would help if there was some evidence to support any of these claims.
Poteshman
Perhaps the strongest support for the "insider trading" claims comes from Professor Allen M Poteshman from the University of Illinois at Urbana-Champaign. He decided to investigate this further, analysing market data statistically to try and assess the trades’ significance. Professor Poteshman points out several reasons to question the foreknowledge argument:
However, he then devises a statistical model, which he suggests is consistent with foreknowledge after all:
One issue that troubles us about this is the lack of analysis of the string of bad news delivered by American Airlines on September 7th, the trading day before September 10th, when the most significant trading occurred. Especially in the context of falling share prices at the time. Professor Poteshman told us via email:
My study does include quantile regressions that account for the market conditions on particular stocks. Hence, there is at least a first order correction for the negative news that was coming out on Sept. 7 on AMR.
But can you really treat the news so simply? Professor Paul Zarembka supports the claims, saying:
But we’re not saying they were random, rather that they may have been a rational response to significant bad news delivered the day before. Poteshman is essentially saying (with regard to AMR) is that people bought too many puts for that to be explained by the 9/7 news, therefore another explanation is required, but how can you say that without analysing the news itself? After all, if that news had been “we’ll probably be bankrupt in six months” then the put ratios would probably have been even more significant, and Poteshman’s model given even more confirmation of “unusual option market activity”, but would that have made the idea of foreknowledge more likely? Of course not. Obviously the AMR news was less dramatic, but we would still say that you cannot accurately judge the significance of these trades until you take it into consideration.
Another complication here comes in the fact that put volumes in these shares were normally low, from what we’ve read, and this obviously makes it easier for spikes to appear. The 9/11 Commission said:
A single U.S.-based institutional investor with no conceivable ties to al Qaeda purchased 95 percent of the UAL puts on September 6 as part of a trading strategy that also included buying 115,000 shares of American on September 10. Similarly,much of the seemingly suspicious trading in American on September 10 was traced to a specific U.S.-based options trading newsletter, faxed to its subscribers on Sunday, September 9, which recommended these trades...
The September 6th UAL puts would automatically appear significant, then, even though only one investor was reportedly behind them. But he was an institutional investor (at least according to the Commission), someone with a lot of money to spend, his purchases are always going to stand out. But does that really mean you can mathematically indicate it’s likely that investor had foreknowledge of 9/11, without considering the other market conditions and information available at the time?
And it’s a similar story with the AMR trades. Newsletters and share tipsters do deliver spikes in trading every day, at least here in the UK. There was bad news on Friday that may well have justified the newsletter suggesting puts be purchased (and if that news had leaked or been suspected prior to release then you might have an explanation for earlier purchases, too). Professor Poteshman appears to be saying that the traders were more pessimistic about the future of AMR than they should have been, that they over-reacted to the news and bought more puts than he’d expect, but then perhaps his statistics were based primarily on trades being individual decisions (an institution or private individual decides to buy some puts). Newsletters aren’t always like that. Many are purchased by people who do little research themselves, and simply follow the recommendations provided. Therefore if the author of the newsletter says “buy puts”, then that’s what many of them will do, and the higher the circulation of the newsletter, the greater the resulting spike of “abnormal trades” will be.
Anyway, Screw Loose Change raised a similar issue or two that you might want to consider. And please don’t end this here: go read Poteshman’s paper, just to assess this for yourself. If you’re not great at statistics then some of it will make your eyes glaze over, guaranteed, but there are also interesting comments that are accessible to everyone, so overall it’s well worth a read.
Objections
There are those who say market conditions before 9/11 couldn't possibly explain the put options. A number of objections are raised to support this point of view.
Too specific
The trades were "too specific", we're told. Why were only American and United Airlines affected, for instance, the two carriers that would be involved in 9/11?
One partial answer here is that there were concerns over other airlines:
And Alexander Rose has written that short interest in other airlines was up, if not by as much as with United and American:
There was a general expectation that stock prices would fall, then. But why did these airlines suffer in particular? We've already seen that American Airlines released surprisingly bad news on the 6th of September. United was the largest carrier, so if an investor believed the downturn was a general one then it would be natural to expect them to suffer even more, and a New York Times article confirms that the companies could be expected to perform in a similar way:
If you were an investor who read about the American Airlines profit warning over the weekend, then, it wouldn't be unreasonable for you to assume that United Airlines next figures would be even worse, and that you could profit by purchasing some put options.
There were more companies than just the airlines involved, of course, but were these put options really as targeted as is sometimes claimed? The book "Black Ice: The Invisible Threat of Cyber-Terrorism" tells us that "the Bank of New York and Cantor Fitzgerald financial services were the stock brokerage companies that suffered the most damage on September 11", with Cantor losing nearly 700 people and the Bank of New York losing major telecoms facilities. But we've seen no suggestion of suspicious trading in either company directly (though there's a less quoted issue re: a Cantor network: see here).
The reality is that when you get away from the airlines, most of the other targeting is considered in retrospect. That is, people were looking at companies with high put options prior to 9/11, considering those that might be said to be affected by the attacks, and presenting those as the most suspicious. But there were many different companies within the WTC, multiple insurers responsible for its insurance cover, and a host of other companies that would see their businesses seriously affected by 9/11. With the stock market falling, surely you would expect at least some of these to have put options "spikes" over any particular few weeks?
Volume
Another common objection tells us the put options were too high to be normal trading. But is that really true?
The first complication here comes in determining what the volumes actually were. Go to Prison Planet, for instance, and you might come across this archived story that seems to tell you:
4,744 on UAL over two days, then 4,515 on SMR in one day. That's all clear, right? Except it isn't. Another archived article at the same site tells us this:
And an article on financial site The Street says there were 2,000 UAL put options purchased on the 6th of September, with 1,535 AMR puts bought on September 10. So which is correct?
Figuring out the significance of these volumes is equally problematic. 9/11 Research uses the following quotes:
That's 285 and 60 times more than average, then? Not according to the Chicago Tribune:
The "285 times higher than average" becomes only "four times" higher than normal for United Airlines, while American's "60 times average" is now "nearly 11 times its average daily volume for the year".
There could be many explanations for this. The calculations may be defining "normal" and "average" in different ways, for instance. Perhaps they're looking at different sets of put figures (it's a complicated business). Whatever the cause, it's plain that there are significant contradictions here, even between figures produced in mainstream media stories. Don't take any "x times bigger than usual" claims as necessarily true.
It's also worth noting that put option spikes aren't uncommon, as Insight revealed:
They're using the lower figure for American Airlines put options here. However, the United Airlines spikes of 8,212 and 8,072 (if accurate) show that the 9/11 figures, while high, were in no sense unique.
And as the same article points out, these figures weren't high in terms of option trading. The volume could have been even higher, and there were safer ways to do it:
If these volumes really weren't so exceptional then it raises a problem for another aspect of this story, a claim originated by Mike Ruppert and retold here by David Ray Griffin:
This is applying hindsight in a fairly dramatic manner, and it’s also leaving out crucial information: the American puts followed the trading day after the company had released a major profit warning, when you’d expect investors to believe the shares had further to fall, and the United Airlines trade volumes were lower than the spikes that occurred in March and April. If a United Airlines spike of 8,072 in March didn’t suggest an imminent attack, then why should 4,744 puts over two days in September have any more effect?
Related Issues
Mayo Shuttock III
On 9/11 Mayo Shattuck III] was chairman of Deutsche Banc Alex Brown, the US private client and asset management division of Deutsche Banc. This has been tied in some quarters to the put options purchased before the attacks, as Cooperative Research comments:
We've seen not the slightest evidence to support such a claim, though, and at first glance it makes no real sense. Why would Brown resign because of the put options, which weren't yet even being reported in the press? If anyone has an explanation that's based on more than conjecture then we've yet to see it.
Further, while Cooperative Research do their best to put a conspiratorial spin on this by saying "no reason is given" for the resignation, that simply isn't true.
A reason for the resignation was given, and it turns out that Shattuck was maintaining a connection with the company. Anyone might claim that the reason is false, and doubtless they will, but without some - or indeed any - evidence to support that, it's hard to see where this story will go.
Conclusion
We cannot prove that the pre-9/11 put options weren't made with foreknowledge of the attacks. And we suspect not even those who instigated the trades could do that. Suppose the author of the 9/9 newsletter recommending the purchase of American Airline put options were to be identified, for example. They might explain in detail their reasons for that decision, but that can never be definitive, and we have no doubt that people would continue to claim they had received a tip-off from elsewhere.
What we can show, however, is that the usual discussion of these issues leaves out a considerable amount of relevant detail.
Books like "The Hidden History of 9/11" claim the 9/11 Commission footnote was their only word on the topic, for instance, ignoring the details provided in the Terrorist Finance monograph we've quoted.
We've not seen anyone even begin to fully address the economic circumstances of the time, including the general fall in share prices in the weeks before 9/11, and the bad news that specifically related to United and American Airlines.
The significance of the put options volumes appears to be exaggerated. Previous spikes are rarely even mentioned. And while high level conspirators might be able to cover up investigations in the US, we've yet to see any explanation of why inquiries in other countries revealed nothing, despite dramatic headlines when the stories first appeared.
In short, we believe there are explanations for the put options, other than 9/11 foreknowledge: it's just that you're not being told what they are.
We're not stopping just yet, though. The SEC sent a memo to the 9/11 Commission where they detailed their investigations, and the picture would be clearer if that were available. We've applied for it under the FOIA, and been turned down: the matter is currently under appeal. If that fails then we'll try to get more 9/11 Commission documents on the issue when they're opened in 2009. This isn't the end of the story.
References
These articles are neutral, or tend to support the idea that the put options may indicated 9/11 foreknowledge.
