My hopes that the markets had reached a secondary bottom last week were completely dashed Wednesday and yesterday, as the bad news came pouring out like blood from an open wound. The charts of all the broad indices have completely ruptured.
Yesterday’s cavalcade of bad news completely overwhelmed the boost to the markets from Cisco Systems’ announcement last Thursday that it saw its business “stabilizing.”
- After the close Wednesday Sun Microsystems made it clear that they didn’t see their business stabilizing. They hinted heavily that they wouldn’t make their quarter, and would probably show an actual operating loss. Inventories haven’t budged, and business in Europe and Japan has slowed. Lots of brave talk about long-term goals — but no results.
- Just before the opening the European Central Bank did an encore of Alan Greenspan’s 25 basis point interest rate cut last week — and the European markets responded exactly the way the US markets had: they sold off. Too little. Too late. No credibility.
- More bad news out of Europe: European antitrust regulators said they suspect Microsoft of illegally thwarting competition for audiovisual software by bundling its Media Player with its Windows operating system. It’s bad enough that US technology companies like Microsoft, Worldcom, and JDS Uniphase are persecuted in their own backyards. But this is further evidence that now growth and success will be punished by power-mad bureaucrats on a global scale, no matter where the victim is domiciled.
- A death-blow to the networking industry came from Worldcom, which announced late Wednesday that it would be cutting is capex budget going forward by another $1.5 billion, on top of a $1.5 billion cut announced less than a month ago.
- Ford Motor had bad news too, showing that the Old Economy is as vulnerable to the recession-that’s-not-a-recession as the New Economy. Announcing layoffs of 5,000 white collar workers and a suspension of executive bonuses, somehow they managed not to cut their dividend. But Morgan Stanley’s auto analyst Stephen Grisky thinks they can’t afford it anymore, and that a cut’s practically a sure thing. Alan Greenspan — and a lot of econopundits — have made a big deal of strong auto sales in the first half, ignoring that the Big Three have had to practically give away the cars to make the numbers. This should change their tune.
- And worst of all, the consumer spending numbers released before the opening yesterday are beginning to suggest that the much-vaunted strength of the consumer economy is finally starting to buckle.
Okay, so now does everyone believe we are in a recession? Maybe now that President Bush is back from a month-long vacation he’ll follow the example of his predecessor in office and “feel our pain.”
In principle, I don’t see it as the ideal role of government to bail the economy out. But the reality is that the mistaken policies of government have gotten us into this mess, and I do see it as government’s role to clean up after itself. Here’s a checklist of what our fearless leaders could do. If any single one of them happens, the economy could get turned around in a matter of months (and the market in a matter of hours).
- Change the Federal Reserve’s operating mechanism from an interest rate target to a commodity price target, preferably a gold target. In the meantime, do whatever’s necessary within a rate target to inject liquidity into the banking system.
- Slash or simply eliminate capital gains taxes.
- Slash marginal income tax rates across all the brackets —now, not in ten years.
- Eliminate the Alternative Minimum Tax.
- Call off the antitrust dogs, and make it a World Trade Organization priority to do the same thing around the world, particularly in Europe.
Do these things seem utterly impossible to you? Well, that’s why we’re in a recession. Send an e-mail to your congressman. Seriously.
The views expressed within represent those of the author, and do not necessarily reflect those of Capitalism Magazine’s publishers.
