A resilient nation invested in its future

DONALD COXE September 16 2002

A resilient nation invested in its future

DONALD COXE September 16 2002

A resilient nation invested in its future



EVERYBODY REMEMBERS what they were doing when they got the news.

Everybody remembers whom they called to see if they were safe.

Everybody remembers worrying when and where the terrorists would strike next.

Everybody remembers wondering if the world would ever get back to some semblance of normalcy.

It is humbling to think now about what we thought the economy would do. We all agreed the terrorists had driven the U.S.— and perhaps the world—into a deep recession. We knew the travel industry was in crisis, and that some airlines would go bankrupt. We saw that debt loads across the economy were at towering levels, and we assumed that those towers would prove as vulnerable as the World Trade Center. The stock market had a week to think about all the awful things that were going to happen before it reopened, and it dove to a new three-year low.

Then George W. Bush started the surprises. Limp Son of Wimp gave a Churchillian call to arms, and the patriotic

juices began to flow from sea to shining sea. Detroit unleashed an advertising barrage that appealed to one of the most basic of American instincts—the urge to spend on credit. The Fed drove interest rates down with the determination of Marines attacking al-Qaeda forces.

Recipe for a sudden economic and stock market recovery: mix a hearty dose of American patriotism with a smashing military victory; blend in the best mortgage rates in four decades and zero per cent new-car financing. Shake, rattle—and roll.

The U.S. economy emerged from a recession that economists only identified nine months later. The stock market took off as if shot from a howitzer.

The roller-coaster ride wasn’t over, because those love affairs were too hot not to cool down. The economic recovery dwindled from five per cent real GDP growth to one per cent when it became apparent that, apart from cars and houses, there wasn’t much spending on anything else. The stock market discovered that many of the numbers it had been using to

try to make a case for buying expensive stocks ranged from aggressively promotional to outright lies. One of the Big Five accounting firms was convicted of fraud and we were down to the Final Four—and nobody was too sure about them.

In the flush of victory over the Taliban, the New Four Horsepersons (Bush, Rumsfeld, Rice and Wolfowitz) started talking openly about “On to Baghdad!” as if ending Saddamy there would be another painless triumph for smart planners armed with smart bombs and gizmos.

That call isn’t resonating so powerfully across the land. Tying Saddam to the terrorists isn’t easy, because he’s no Islamic fanatic, and most of the hundreds of thousands of people he’s gassed, shot, bombed, garrotted or tortured have been Muslims.

So the warriors don’t have new victories to proclaim, and that means the populace is looking at the home front again—a somewhat dispiriting sight. Retail sales, other than automobiles, are dwindling; housing remains strong, but there’s daily talk of a new bubble; and business capital spending’s share of GDP, which went from 13 per cent in 1992 to 17 per cent in 1999-2000, is back down to 15 per cent and falling. The US$6 trillion stock market meltdown drained wealth from consumers, pension funds and endowment funds, which means they have less money to spend even if they’re eager to do so.

And yet...

Unemployment has remained below seven per cent, despite 18 months in which only one quarter’s GDP was strong and three quarters were in actual recession. The thousands of security jobs created at airports, businesses and offices seem to have offset most of the other jobs lost in airports, businesses and offices...

Consumer confidence numbers sag, but from lofty levels. This is not the American equivalent of Euro-angst...

Racial demagogues are having a tough time convincing African-Americans that, with the economy weak, they are once again the prime victims of an evil system. Cynthia McKinney, veteran black radical congresswoman from Georgia, was defeated in the Democratic primary there by a

The market dove to a new three-year low. Then Bush started the surprises. Limp Son of Wimp gave a Churchillian call to arms, and the patriotic juices began to flow.

Investors began to muse that maybe the share of crooks and con men among top management was roughly equal to that of the population at large

moderate. Jesse Jackson and Al Sharpton are having trouble drawing crowds...

Bruce Springsteen resurfaces with a hit patriotic recording attuned to the nation’s feeling about 9/11...

An American Automobile Association poll released Aug. 29 showed that travellers’ confidence in airline safety has rebounded from 33 per cent to 75 per cent, indicating that most people think those long lines and big new baggage bomb detection machines are working...

And the flags still seem to be flying almost everywhere. When the crowds stand for the Star-Spangled Banner, they still seem emotional.

The terrorists thought America would implode in response to the explosions at the twin towers and the Pentagon. Many economists thought the debt-heavy economy would buckle under the weight of terror fear and the stock market’s problems. Yet it is performing at least as well as Europe, and no one is blaming al-Qaeda for Eurofunk.

H.L. Mencken observed that nobody ever went broke underestimating the taste of Americans. Doubtless, but short-sellers could go broke underestimating the resilience of Americans.

This is a nation that reinvents itself as often and as quickly as needed. It can seem to have utterly inadequate political leadership until it really matters: then it suddenly has tough, decisive, smart political leadership. Bush surprised nearly everyone last September, and he hasn’t run out of adaptive skills (or luck) since.

As of mid-July, polls showed most investors had lost confidence in the nation’s business leaders, and didn’t think Bush’s people were doing enough to clean things up. Then beleaguered Securities and Exchange Commission head Harvey Pitt announced that all CEOs and CFOs would have to swear as of Aug. 14 that their published financial statements were

accurate. It looked like it had the potential to be the most dramatic reporting day in the 2,000 or so years since word came from Rome that everybody had to go to their family city to be taxed.

Well, it didn’t turn out that way. The big day came and went, with few big earnings restatements. The stock market breathed a sigh of relief and briefly rallied. No, confidence in Big Business hadn’t come roaring back, but investors began to muse that maybe the percentage of crooks and con men among top management was roughly equal to that of the population at large. That meant most of the bad news was out, and investors could go back to focusing on the economy, interest rates and corporate profits: a return to normalcy.

We’ve always known that The Law of Unintended Consequences will arise to bedevil the best-laid plans of governments, bureaucracies, businesses, and international agencies. We now know that terrorists are not exempt from this law—even those who thought the only law they had to follow was shariah. Here’s what can actually be credited to al-Qaeda:

1. Bin Laden’s Bombing Brigade brought the U.S. together after the disputed election results had created a fissure that looked unbridgeable.

2. Bush’s biggest wish was to rebuild the Pentagon, making it leaner and mightier, and more dependent on advanced technology than on big armies boasting big tanks. Those plans alarmed the militaryindustrial complex, which declared war on Defence Secretary Donald Rumsfeld. As of Sept. 10, it looked as if Rumsfeld might have to throw in the towel. He cleverly waged two wars at once in Afghanistanone against the Taliban/al-Qaeda, and one against Pentagon reactionaries. Rumsfeld hasn’t been able to kill all the outdated weapons programs, but he’s getting funding for R & D—and some procurementon the weapons of tomorrow.

It’s a year later, and most of the pain remains. But America turns out to be tougher, smarter and harder to hold down than most observers thought.

Osama: you lost. Big.

America: you’re winning. Big.

Donald Coxe is chairman of Harris Investment Management in Chicago and of Toronto-based Jones Heward Investments. His column appears every week.