Being Street Smart
More Economic Stimulus on the Way
By Sy Harding, editor
Street Smart Report Online
Treasury
Secretary Paul O'Neill and White House Economic Advisor Larry
Lindsay handed in their resignations at the request of President
Bush on Friday, joining SEC Chairman Harvey Pitt who was pressured
to resign a few weeks ago.
This is just the first
step in what I expect will be a determined drive by the Bush
Administration to convince the country that it has an aggressive
plan that will get the economy booming again.
Congress defeated the
Administration's previous economic stimulus plan earlier this
year. But efforts in the recent Congressional elections resulted
in Republican control of Congress, not only removing that roadblock,
but also making an even more aggressive stimulus package possible.
The shake-up of the
White House economic brain-trust begun on Friday with the resignations
of O'Neill and Lindsay, also removed a couple of key people who
were only luke-warm to plans to provide still more economic stimulus.
Treasury Secretary O'Neill has been almost openly opposed, feeling
the economy is already recovering at a satisfactory pace.
But the Bush Administration
is not going to be happy with `a satisfactory pace'. It will
want the economy clearly growing next year, and booming by the
time the Presidential elections roll around again in 2004.
As I have remarked
before, George Jr. is not going to make the same mistake his
father made. When George Sr. came up for re-election in 1992
the economy was in such a very slow recovery from the 1990 recession
that few were convinced it was recovering at all. Voters had
the same concern, and Bill Clinton's campaign pounced on that
situation with its "It's the economy, stupid" election
pitch. George Jr. will not repeat his father's error, and if
anything will make sure he errs on the side of excessive stimulation.
So even though the
economy seems to be recovering at a quickening pace from last
year's brief recession, Friday's resignations indicate there
will be more surprising announcements from Washington in coming
weeks. A major economic stimulation package is already in the
works, and reportedly will include cuts in dividend and capital
gains taxes, employee payroll taxes, significant relief from
prescription costs for the elderly, and other elements designed
to put more spending money in the hands of consumers and investors.
Those kinds of stimuli from the tax-cut side will join significant
increases in government spending; on defense, the build-up toward
a possible attack on Iraq, the new Homeland Defense Department,
etc.
Meanwhile, Treasury
Secretary O'Neill is certainly not the only expert who believes
the economy has already begun to recover at a satisfactory pace.
Aaron Task, in an interesting article on TheStreet.com quotes
Nobel Prize winning economist Milton Friedman as saying he believes
the U.S. economy is in very good shape, citing relatively low
unemployment, strong wage growth, low inflation, and high productivity.
There are still concerns about consumer spending, and whether it will remain strong enough to do all the heavy lifting in the economy by itself, especially after auto sales were reported to be down in November, and retail sales in the holiday season are mixed. But in reporting the rise in Durable Goods Orders for October the Commerce Department noted that spending on capital goods by corporations rose 4.2%. So perhaps the time has come when consumer spending can slack off some without causing a problem, with the slack being picked up by some pick-up in corporate spending.
So the debate over the state of the economy will surely continue. But particularly with the Administration gearing up for more economic stimulus, the prospects should continue to support a positive stock market, even though after eight weeks in a row of gains the time may have come for a pause in the market's progress off the October bottom, and even a temporary retracement of part of the gains.
But in my opinion the warnings from some quarters this week, that the first down week in the stock market in two months is the beginning of a resumption of the bear market, are out in left field. Perhaps profit-taking by traders will result in a retracement of part of the gains made from the October low. That would be normal. But the outlook for the economy seems to have too much going for it, for at least the next several months, to precipitate anything major on the downside.
Editor's Note: Sy Harding is president of Asset Management Research Corp., 169 Daniel Webster Hwy, Suite 11, Meredith, NH 03253, publisher of The Street Smart Report, 1 year, 17 issues, $250 (now in its 15th year of exceptional market research for professionals and serious investors) and The Street Smart Report Online at www.StreetSmartReport.com, 1 year, $225.
Mr. Harding has consistently been ranked in the Top Ten Timers by Timer Digest for Stock Market Timer, Gold Timer and Bond Timer since 1990. In his 1999 book, Riding the Bear How to Prosper in the Coming Bear Market, Sy Harding outlined a simple strategy that works in bull and bear markets, by which investors make the big gains of a bull market, keep them, and continue to make big gains in the next bear market (with just two simple trades a year in any S&P 500 Index fund). Total return for the last six years: S&P 500: +28%; Harding's STS: +125.3%. That's thru 3 years of super bull market and 3 years of a serious bear market! Easily verified. Check it out! Sy Harding's www.StreetSmartReport.com.
