Economic Aftermath of Attacks Could Hurt Web Ad Sector

If the past several months are any indication, the Web advertising sector has blazed the path for much of the economy’s slowing — and that trend could continue and hasten, should some market-watchers be correct in their expectations for the eventual economic impact of Tuesday’s terrorist attacks.

“While not having a direct … immediate impact on advertising, [it] certainly isn’t good for the overall economy … [which will have] serious effects on the sector,” said a hedge fund manager who asked not to be identified.

The destruction of the World Trade Center and the attack on the Pentagon — and what could be a perceived weakness in American financial strength, national security and stability — could affect the marketing world in numerous, indirect ways.

In just one example of how the domino effect might hit the advertising industry, the insurance companies would be the first to feel the effects. Insurance firms likely will bear the brunt of billions of dollars in claims — forcing these companies to cut non-essential costs, such as advertising and marketing expenses.

Next, the companies that back-up insurance companies by insuring them will likely feel the pinch. Since a number of them — such as Berkshire Hathaway — are also significant investors in major, publicly traded ventures, the need to make payouts may spur them to sell some of their assets. By doing that, the reinsurance giants could put downward pressure on the stock prices of companies in which they own stakes.

While Berkshire, in particular, typically shies away from investments in Internet-focused plays directly, it is a major shareholder in several large consumer packaged goods firms — a sector that many peg to lead the Web’s return as an advertising channel.

Economists are worried that such snowballing effects could substantially worsen the U.S.’s economic situation, and they fear that domestic and international investors will launch a large-scale sell-off once American markets reopen, which is expected to occur later this week.

Internationally, markets in Europe and Asia saw staggering plunges overnight on the news of the U.S. terrorist attack. Trading resumed hesitantly in Europe on Wednesday.

To stave off market panic and allay fears of reduced liquidity, the U.S. Federal Reserve set a record Wednesday with the release of $38 billion into the banking system.

The end result is anyone’s guess, said the fund manager.

“We’re all unsure of what to expect … there is a sense of greater risk and uncertainty, and that is never a good thing for the ad sector.”

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