max, the link works for me, so I don't think it's Tice's market forecast per se ... though it is remarkably close. <g>
Here's a recent interview:
marketwatch.com
Meanwhile, here's the article by Marshall Auerback you were trying to access:
MR. O’NEILL, YOU’RE NO ALEXANDER HAMILTON
25 September 2001
"This ‘sit tight and hold’em for the long haul’ is cruel and wrong
advice during a primary bear market. I almost shudder when I hear
person after person give this advice on CNBC and FNN and
Bloomberg. I get the feeling these fools think it is unpatriotic to
sell. Actually, you might say it IS patriotic to tell people to get
into cash. People with cash are the ones who will have the ability
to go in and buy when the bear market hits its final bottom. They
are the real patriots, not the poor devils who are riding this bear
market down." Richard Russell, Sept. 17, 2001
The aftermath of the attacks on the World Trade Center and the
Pentagon have generally shown America at its best: the
selflessness, dignity, and heroism shown by countless survivors,
the sheer pluck in getting back down to business, all evoke
justifiable comparisons with London after the Blitz in World War
II. The measured response thus far of America’s leaders has for the
most part given one hope that the ultimate battle can be won in a
way that does not destroy the fabric of our open liberal societies.
It is certainly comforting that the grown-ups are in charge of
American foreign policy. As political pundit Dick Morris commented
in last week’s New York Post:
"Surrounded by the most experienced, battle-tested and hardened
leaders America has had at its helm since World War II, Bush can
look to Vice President Dick Cheney, Secretary of State Colin
Powell and Secretary of Defense Donald Rumsfeld for guidance.
Compare the players: Would one rather have Cheney, a former
defense secretary, coordinating the response or Gore, whose sole
military experience was as a journalist in Vietnam? Who is better
at the State Department in this time of need? Lawyerly Warren
Christopher or General Colin Powell? At the battered Pentagon,
would one rather have a former Maine senator, Bill Cohen, or a man
who has served before at the helm of the military, former and
current Defense Secretary Donald Rumsfeld?
Which brings us to the Treasury Secretary, Paul O’Neill, and his
shameful display of huckster-ism last Monday on CNBC. At a time
when Americans are displaying ample recognition for the need to
sacrifice, pull together, and experience some inconveniences in
order to accomplish an extraordinarily difficult national goal, the
Treasury Secretary put on his salesman’s cap and appealed to
Americans to charge straight back into the stock market. Not only
is it unseemly to see an important government official issue a
clarion call to buy stocks within days of America experiencing its
first attack on mainland soil by a foreign enemy since 1812, but it
also demeans and trivialises the very serious undertaking now
being contemplated by much of the global community of civilised
nations.
When Winston Churchill received the King’s commission to become
head of a national coalition government of the United Kingdom in
1940, he pledged to the country "to wage war until victory is won,
and never to surrender ourselves to servitude and shame, whatever
the cost and the agony may be." We are neither suggesting that Mr.
O’Neill’s rhetoric soar to Churchillian heights, nor that the current
situation is fully comparable to the second World War, but surely
Americans are justified in expecting a little more from the man
occupying the office of Alexander Hamilton. The US Treasury
Secretary is perfectly entitled to express his views on the
American economy and to propose policies that will place the
country on a sustainable growth path to prosperity. What he should
not do, however, is take on the guise of stock promoter by
suggesting that equities purchased over the next few weeks could
gain "up 50 per cent over the next 24 months". This may indeed be
Mr. O’Neill’s sincere belief, but is now really the time to appeal to
the country’s base instincts of greed?
This is not the first time we have expressed doubts about the
Treasury Secretary’s somewhat unconventional ideas on finance and
economics. Instead of offering policy solutions to areas where
pre-existing vulnerabilities have been clearly identified, Mr.
O’Neill has long clung to the more politically palatable option of
ignoring these problems altogether. On the small matter of a record
current account deficit, for example, O'Neill has gone on record as
arguing that the deficit was a mere statistical artefact, according
to remarks that Bloomberg reported on May 9. He has also told
Congress that, "The current-account system used to track the flow
of goods, services and investment in and out of the U.S… doesn't
fully account for the fact that national borders no longer mean
much to companies and investors." Concern about the record
current-account deficit distorts tax, dollar and trade policy
debates, O'Neill suggested back in June. Indeed, the Treasury
Secretary has gone so far as to request congressional funding to
help develop a new way of measuring trade flows. "Important
decisions are being taken, including some in the Congress, because
of this concern about the current-account deficit," O'Neill told a
House Appropriations subcommittee just two months ago. That, he
said, "is not a very helpful way to think about flows of funds in the
world monetary community".
We suspect that Congress will be appropriating money for more
important purposes at this juncture, and we are by no means
suggesting that the Treasury Secretary’s earlier expressed
priorities remain dogmatically unchanged. However, we find it
instructive to contrast Mr. O’Neill’s frivolous policy iterations
with the serious manner in which the Defence Secretary, Donald
Rumsfeld, has long sought to address the problems confronting
American security in the 21st century (to the point of taking on
powerful vested interests in the Pentagon well in advance of the
recent attacks). One may not agree with all that Secretary
Rumsfeld was proposing, but nobody could accuse him of living in a
state of denial. While Mr. Rumsfeld was completing the Quadrennial
Defence Review to adjust organisations and doctrines to new
technology, to ensure an U.S. advantage in such areas as space,
homeland defence, intelligence, information warfare and power
projection, the Treasury Secretary was blithely acting as a
cheerleader for the new economy, ignoring some of the country’s
grave structural problems that may be have exposed it to much
graver risks in light of the September 11 attacks.
Consider the Treasury Secretary’s long-standing position on the
dollar. Like many dollar apologists (including his two immediate
predecessors), Mr. O’Neill has argued that the dollar’s strength
until recently was as much a reflection of America’s superior
economic might as was the euro’s weakness since inception broadly
symptomatic of the Euroland economies’ supposed structural
weaknesses. He contemptuously dismissed any suggestion to the
effect that the dollar was overvalued, or that its climb to record
highs on a trade-weighted basis was becoming a source of
economic instability. In Mr. O’Neill’s pre-September 11th world, the
dollar’s strength was a reflection of national virility, and not the
cause of a lingering and dangerous imbalance in the American
economy. As market commentator James Grant earlier argued, "The
fact that they have accumulated in the hands of overseas creditors
is proof that the United States consumes vastly more of the
world's goods than it produces. These creditors may dispose of
their dollars as they choose. They do not have to purchase U.S.
financial claims at rich valuations and at 15- or 16-year highs in
the dollar exchange rate. The fact that they have chosen to do so
does not guarantee that they will continue."
Perhaps the Treasury Secretary’s promotional behaviour last
Monday was not out of character, given his persistently expressed
optimism about the US economy. But was it worthy of censure? It
may appear inappropriate to criticise government officials at a
time of national crisis. But when there is no sign of policy being
reassessed in light of changed conditions, when there is evidence
of a major government figure continuing to advocate a highly
questionable course of action that might be inimical to the longer
term interests of the United States, censure is justifiable. To
criticise now is less a question of "We told you so", and more in
the nature of a warning to avoid making a bad situation worse.
Mr. O’Neill may indeed believe that the American consumer is doing
his patriotic duty by investing in the stock market at this
juncture; but what will he say to these very same consumers, if
the market is significantly lower in 6 months time, as
recessionary pressures intensify and corporate profits drop?
Indeed, what does he say to those very investors who
"patriotically" bought the market on Monday’s highs, only to find
themselves substantially in the red by Friday? Do not his actions
in fact risk destroying the very fragile consumer confidence that
he is hoping to sustain by trying to pump up the stock market in the
manner of a carnival barker? Not even the chairman of Goldman
Sachs, Mr. Hank Paulson, dared imply that charging into the stock
market in the immediate aftermath of the attack was an act of
patriotism, when the question was posed to him last week on CNBC.
Over the last five years, the US economy has accounted for about
two-fifths of global economic growth. Such growth has been
achieved largely on the back of producing more than was required
and consumers spending more than they save. For the most part,
such policies have kept the US out of recession. But what at what
cost? Both agents of the private sector are now under considerable
stress: savings rates are exceptionally low, corporate profits have
been declining sharply in response to saturation dynamics,
particularly in the high tech sector (and these conditions were
well in evidence before September 11). The market value of wealth
has tumbled, the real estate bubble looks set to burst, and
unemployment is now rising sharply.
A whole new round of significant layoffs has ensued in the wake of
the attacks, notably in the aviation sector: Boeing, United,
Continental, American, the list will surely expand in the weeks
ahead. A retrenchment was already likely before September 11.
Recent layoff announcements and profit warnings will make a bad
situation much worse in part because many pre-existing problems
were not addressed well before this tragedy by figures such as
Messrs. O’Neill, Greenspan and earlier, Messrs. Rubin and Summers
(and wasn’t it very interesting to see former Treasury Secretary
Rubin brought into meetings last Wednesday with Chairman
Greenspan and chief economic advisor Lawrence Lindsey; Mr.
O’Neill’s absence from that meeting was equally telling). In their
steadfast refusal to "see no evil, hear no evil, speak no evil", in
their all-out efforts to feed and sustain a growing bubble, in their
persistent espousal of a non-existent productivity miracle and
their corresponding refusal to level with the American investing
public, these figures – Rubin, Summers, Greenspan, and O’Neill –
have committed the economic equivalent of appeasement.
For this reason, a big deterioration in the world economy could
render the attacks of September 11 far more damaging than they
already seem. Martin Wolf of the Financial Times correctly notes
that in terms of the timing and targeting, as in organisation, this
act of terrorism was a product of malevolent genius.
Notwithstanding the assertions last Thursday before Congress by
Messrs. Greenspan and O’Neill to the effect that there were signs
that the U.S. economy was beginning to stabilise after a yearlong
period of slowing growth, prior to the attack, the opposite is in
fact true. Even before September 11, the world was already
teetering on the brink of recession amidst intensifying
deflationary pressures. The US economy had barely grown this year
and there were few signs of improvement. Equally ominous was the
global backdrop: Most of the emerging world from Argentina to
Taiwan was in trouble. Even before the attack on American soil,
Japan’s policymakers appeared determined to let the country
wallow in a second "lost decade". Emerging Asia, except for China,
has been devastated by the US slowdown, particularly by the
collapse of the high-tech sector. Euroland was close to stagnation.
How, then, should policymakers respond? Perhaps not by promising
"blood, sweat, tears and toil", but if we are indeed in a time of
war, or national crisis, does it not behove the government to
mobilise savings toward the achievement of the declared objective
(namely, the destruction of terrorism), rather than inducing
actions that may ultimately destroy these very savings and so
undermine the goal? Sticking to a simplistic mantra, "stocks
always go up in the long term" risks promoting actions which could
ultimately undermine the consumer confidence and steadfastness
required to overcome the current difficulties. It will certainly do
little for America’s now virtually non-existent household savings,
if even greater losses are now piled onto pre-existing ones. As
long-time market sage Richard Russell remarked, "The ‘Gosh ain’t
we having fun!’ sentiment is fading rapidly, and a new seriousness
is enveloping the nation". Policy should now reflect that new
reality. After all, this conflict is going to take more than a
one-shot cruise missile strike into Sudan, Iraq or Afghanistan in
order to be resolved successfully. Similarly, economic
reconstruction and recovery will take more than a simple plea to
buy the stock market on the dips. The President, Vice President,
and Secretaries of State and Defence have all responded admirably
thus far to the new challenges now facing us. Is it not time for the
Treasury Secretary to step up to the plate as well? |
