January 4, 1999
Bubba and the Bubble
By Alan Abelson
Great copy.
That's the highest compliment a journalist can possibly confer. And in terms of
providing great copy, they don't come any better than 1998.
In fact, we can't immediately think of any year that comes even close. So we're
all too happy to confess a heavy melancholy at its passing, lightened only by the
fervent hope that 1999 won't prove a total bust.
In the things that really count -- bread, circuses and sex -- 1998 was almost
obscenely rich. For which praise be to the unwholesome twosome of Wall Street
and Washington.
The defining elements of this riotously exciting year, which gave it its unique
stamp, were Bubba and the bubble. That both survived the year was
extraordinary; that both did so in flaming fashion was flabbergasting.
Starr-crossed, hounded by a harridan fully armed with tape recorder and
broomstick, pursued by a wild herd of adulterous and nonadulterous Republicans
and exposed by the notorious Loose Lips Lewinsky, Bill Clinton slithered
through the daunting year unscathed except for a mild case of impeachment and
with his ratings at an all-time high.
Mr. Clinton's defense at his forthcoming Senate trial will be that he's strictly a
stand-up guy and was never guilty of lying down on the job. His postural claims,
incidentally, are fully corroborated by Loose Lips' grand jury testimony.
The political furor surrounding Mr. Clinton at home had repercussions abroad,
some of them unexpectedly favorable. Fidel Castro, for example, was moved to a
rare expression of sympathy for an American President. After release of the
Starr Report, Mr. Castro sent Mr. Clinton a box of choice Havana cigars.
While impeachment and the salacious details of the charges leading up to it
obviously were the main attraction of the year in politics and made it historic, not
to say memorable, they weren't the whole story. Running against a party whose
President was in the dock, the Republicans successfully bucked the odds and
managed to lose ground in the 1998 midterm elections. It's not so easy to snatch
defeat from the jaws of victory, but they did it.
One explanation for the poor showing was offered by Bill Bennett, a GOP
stalwart best known as the inventor of virtue, who observed that Republicans
would gladly cut their own throats if they could bleed on someone.
The prime casualty, in any case, was Newt Gingrich, who a scant four years
earlier had triumphantly led the party out of the wilderness. Newt's political
demise came the very week of the tragic fate that befell Friedrich Riesfeldt, a
zookeeper in Panderborn, Germany. Surely you remember: It was in all the
papers, at least in Panderborn.
Intensely solicitous of his charges, Herr Riesfeldt administered a laxative to a
costive elephant, only to suffocate in the fecal avalanche unloosed by the
ungrateful beast. The parallel between what happened to Riesfeldt and what
happened to Newt is downright eerie.
The Asian economy did not disappear in 1998, but not for lack of trying. An
uptick in the region's collective stock markets from the subbasement of Hades to
which they had descended in breathtaking plunges was widely hailed --
everywhere but in Asia -- as evidence the worst was over.
Perhaps it is. But Marc Faber relays the intelligence that exports from that part
of the world in October, the latest month for which numbers were tallied,
suffered their worst collapse since the crisis began. Double-digit declines from
the same month last year were recorded by, among others, China, Korea, Taiwan
and Thailand. Lucky thing that exports aren't important for those countries.
The Russians last year somehow contrived to make the Asians look prosperous.
Moscow's problem was a fiscal policy that was all outgo and no income. The
absence of revenues was painstakingly investigated by a secret commission of
American academic economists, funded by George Soros and headed by Jeffrey
Sachs, the esteemed architect of Russian capitalism, the father, as it were, of
Russia's delinquent economy.
Although the findings of the economic sleuths have been sealed, we've gotten a
peek at them, thanks to our spies in Russia (they come cheap these days, what
with devaluation, the downsizing of the KGB and all). With typical American
ingenuity and an admirable ability to cut through red tape (the only kind
permitted in the bad old Soviet days and of which there's still a huge inventory),
the elite Sachs group traced the lack of government revenues to a failure to
collect taxes.
Of the not-inconsiderable number of nations whose economies are in the pits,
some were the victims of circumstance, others had to work at it. In the first
category were the big spenders and big borrowers (name the Southeast Asian or
Latin American basket case of your choice).
In the second category were those unfortunates dependent on practically any kind
of raw material, as commodities, led by oil but including comestibles as well as
inedibles, sank like a tub of lead in fresh water. The Commodity Research Bureau
Futures Index sagged to its lowest level in over two decades, a performance
seconded by the Goldman Sachs Commodity Index, which lost a cool 36%-plus
for the year.
With oil prices plummeting to a 12-year low, investors in energy futures in 1998
earned a total return of roughly (and, man, it was rough) minus 48%. If you
were in the market for something a little worse, you'd have been satisfied only in
hogs, where the negative return exceeded 50%. Indeed, aside from platinum and
tin, both of which wound up the year on the plus side (don't ask us why), every
major commodity that Goldman keeps tabs on was a loser.
And that most emphatically included gold, whose primary distinction in 1998 was
to fall to $274.30 an ounce, a sorry price it hadn't seen since 1979. In other
words, gold again demonstrated last year, as it has with commendable consistency
since 1980, that it's a leaky store of value but an unfailing hedge against capital
gains.
No mystery as to why hard assets have been having such a hard time: There's too
much of everything in the world. In part, this global glut has been caused by the
boom of the 'Nineties, identified in this space last week by the erudite Barton
Biggs as an investment boom whose invariable spawn is overcapacity.
Not the least of the contributors to that unwelcome condition are some of those
aforementioned economic invalids -- the big borrowers, big spenders, who were
also big magnets for foreign money. And not only did their financial abandon
help create the monster surplus of supply, but, ironically, their current enfeebled
state prevents them from generating the necessary demand to help reduce it. They
have got themselves, in the words of the immortal Ollie Hardy, into a fine mess.
The dimensions of that mess can be gauged by the fact that, in the second half, the
world's industrial production limped along in negative territory. And that hasn't
happened for eons. |
