Jul 24, 2008
Why The Dow is Going to 8,000 and America is Still Great
By Guy Bennett, Q1 Publishing
“I predict future happiness for Americans if they can prevent the government from wasting the labors of the people under the pretence of taking care of them.”
- Thomas Jefferson
When Miss USA collapsed to the floor during the Miss Universe Competition in Mexico last week – for the second year running – the symbolism was complete.
The beauty queen has lost her confidence and her grace.
Yes, she popped up bravely, smiled and waved at the crowd. But the notion of “winning” was gone. An hour later she stood on the sidelines clapping politely as Miss Venezuela claimed the crown.
America has toppled off her high heels.
THE BEAUTY QUEEN IS BROKE
Since 2001, total US debt has increased $500 billion every year. It now stands at $9 trillion, approximately $60,000 per head of the U.S. working population. The trade deficit (the difference between the value of exports and imports) is running about $700 billion a year.
China, Russia, Norway, Kuwait, and others have accumulated massive treasure chests of US dollars.
The last nine months has pushed America against the ropes. The Dow plunged 22%. Two million Americans have lost their homes. America has spent six years and $600 billion mediating a civil war (death toll so far: 4,000 troops and 120,000 Iraqi civilians). Even Warren Buffet’s mighty Berkshire Hathaway (BRK: NYSE) has shed $95 billion in market cap this year.
And if you think it can’t get any worse, you’re a “positive thinker” because the history of the US stock market suggests that this bear is still a cub. The Dow is currently at 11,350. I expect it to fall to 8,000 by the end of the year. And here's why:
THE SHOPPING SOLUTION IS DEAD
Normally, Americans respond to an economic crisis by shopping.
More than two thirds of US economic activity comes from domestic spending. But to stimulate national economic growth you need to buy your own stuff.
When Americans shop, they buy Chinese-made goods, not American. One million US manufacturing jobs have disappeared in the last decade.
I am a Canadian who happens to love America.
I have lived in New York, Michigan, California. I attended Syracuse University. I have travelled to 35 of the 50 states. I used to own property in Anza Borrego Desert, east of San Diego. I feel like I know the country and its people pretty well.
Jazz, blue jeans, personal computers.
Americans are famous for their art and their innovation.
But does the country have a soul?
Here is my answer, wrapped in a memory:
AMERICA THE GRACEFUL
December 13th, 1979 - I’m 19 years old, sitting in a greasy spoon in downtown Chicago. It is 40 below outside. I am broke, without a proper winter jacket, nursing a coffee, stretching it out, trying to keep warm.
In the booth next to me there is a black woman sharing a plate of fries with her two small children. She looks like a woman who has grown used to doing things for herself.
After a while she gets up, pays her bill and exits the diner with her children. The three of them trudged past my window, hunched against the swirling snow. One child looks up briefly and smiles.
A moment later the waitress brings me a large bowl of stew. Potatoes, carrots, meat - and a thick slice of bread on the side. It smells delicious. But I didn’t order it. And I don’t have the money to pay for it. I tell the waitress she’s made a mistake. She points outside: “The woman who just left bought you this soup and paid for your coffee”.
The graciousness of that gesture has never left me. How did she know I was broke? And why would a stranger – who did not appear wealthy – pay my bill and disappear without my being able to thank her?
Because that is America. The real America. Thomas Jefferson’s America.
A NEW REMEDY IS NEEDED
The country is currently wounded, both spiritually and economically.
Old remedies (shopping) simply will not work.
The US stock market will continue to trend downwards until a new remedy is found. That new remedy will require some clear thinking.
George Bush does his best. But I doubt even his biggest fans would claim that he is clear thinker.
A “war against terror” makes precisely as much sense as a war against “goofiness” or “joy”.
Rule of thumb: it really helps if the enemy has a uniform.
You want to get a read on someone’s character?
Watch how they make decisions under pressure.
September 11th, 2001: President Bush is reading to some school children when an aid whispers in his ear that a second tower has been hit and America is under attack. He nods, stares ahead. Bites his lip. Sits there for seven minutes, immobile, listening to the children read.
Critics have used this incident to cite Bush’s indecisiveness. But that would suggest he was weighing his options. Torn between multiple paths of action. A far more likely explanation is that he simply drew a blank.
It is pointless and unfair to blame Bush for his shortcomings.
His early biography is a grim rap sheet of humiliation. Rejected from private school as a child. Lowest recorded passing mark on National Guard exam. Head cheerleader in high school. Rejected from law school. Chickened out of Vietnam. Arrested for drunk driving. Loses big in oil industry. Accepts gift of baseball team from Daddy. Loses Congressional bid etc.
Deeply humiliated people wield power erratically.
It is a testimony to Bush’s personal character that he hasn’t yet nuked Switzerland at 3 a.m. in a drunken rage.
POTATO FARMERS LEARN NEW TRICKS
But can clear thinking at the top level of government catalyze real change in an economically troubled country?
The short answer is yes.
Case in point: twenty years ago Ireland was a poverty-stricken country of potato farmers. The unemployment rate was at a near depression height of 15%. The government could barely pay its bills.
Prime Minister Charlie Haughey told the Irish people that their country was headed for disaster. A host of “radical” new policies followed.
More teachers. Better food. Lower corporate taxes. Anti-poverty task forces. Tax breaks to artists. He built ten new universities. University became free .
Results?
Ireland now has the second highest per capita income in Europe next to Luxembourg. The Gross National Income is $41,140, the seventh highest in the world. Home ownership stands at 80%. Unemployment is 4.6%. With a stable economy and a highly educated work force, over 1000 international companies have set up offices in Ireland since 1987, including Motorola, Dell, Intel, Microsoft, IBM etc.
If Ireland can do it, so can America.
But is there any reason to believe that John McCain or Barack Obama can do a better job than George Bush?
Let’s scrutinise these decision-makers when they’re under pressure.
JOHN MCCAIN BLED FOR HIS COUNTRY
John McCain grew up following his father to various naval postings in the United States and the Pacific.
He entered the United States Naval Academy at Annapolis, and eventually became a fighter pilot.
McCain was shot down over Vietnam, imprisoned and tortured for five and a half years.
In mid-1968, McCain’s father was named commander of all U.S. forces in Vietnam. McCain was offered an early release.
What did McCain do?
He informed his captors that he would accept the offer only if every US soldier captured before him was released.
They threw him back in his cell. The torture continued.
You may not be impressed with his record as a Senator, but McCain passes the character test with flying colours.
BARACK OBAMA DOES NOT FOLLOW THE HERD
Barack Obama was born in Hawaii on August 4, 1961. He graduated from Columbia University in 1983. Obama put law school on hold after college and moved to Chicago where he became a community organizer with a church-based anti-poverty group.
Obama earned his law degree from Harvard in 1991, and practiced as a civil rights lawyer. He ran for the Illinois State Senate, where he served for eight years beginning in 1996.
In October, 2002, America was on the verge of waging war against Iraq. Anyone who opposed the plan was branded a coward.
The safest thing for the ambitious Obama was to keep his head down. Quietly go with the flow.
Instead he stood at a podium and made the following statement:
“Even a successful war against Iraq will require a U.S. occupation of undetermined length, at undetermined cost, with undetermined consequences. I know that an invasion of Iraq without a clear rationale and without strong international support will only fan the flames of the Middle East, and encourage the worst, rather than best, impulses of the Arab world, and strengthen the recruitment arm of al-Qaeda. I am not opposed to all wars. I'm opposed to dumb wars.”
Obama made a brave decision, and in hindsight he appears clairvoyant.
In McCain and Obama you have two men who have faced difficult circumstances. Obama stuck his neck out. He challenged the wisdom of the President, when few had the guts to do it. McCain refused to leave his fellow servicemen behind. He was tortured as a result.
BRAVERY IS KEY
The leadership vacuum has left America in rough shape.
Crawling out of debt isn’t easy. It will get worse before it gets better.
But the next President will have the courage to make hard decisions under pressure.
And that will make all the difference.
Make money, not war,
Guy Bennett
