POLITICAL DISCLOSURE STATEMENT
I'm a registered Republican (by default)
but consider myself a conservative with
a few libertarian leanings.
______________
Introduction
Time does indeed fly by! It is going on three months since I did the
first hypothetical George Bush interview (on 11/21). The initial event proved
popular with readers, and it also set up good follow-up opportunities.
Originally, I intended to move along with the follow-ups rather quickly.
However, upon further thought, it seemed wise to wait a bit. After all, the
election was still the better part of a year off, and Democrats were only in
the early stages of preparing for the many caucuses and primaries now in full
swing. Howard Dean was then the odds-on favorite to win the nomination; John
Kerry was a goner.
The Donkeys
Things change! It is quite possible that after tomorrow's Tennessee and
Virginia primaries, John Kerry will all but have the Democrat nomination in
hand. Not in required delegate count, but if Kerry wins tomorrow in these key
Southern states, his momentum should prove unstoppable. Not all that long ago,
a prediction that Democrats would have their standard-bearer in place by 2/10
was a major long shot.
Based on a recent Zogby tracking poll, here's what tomorrow looks like
down South.
---------------------------
ZOGBY INTERNATIONAL 2/9
TRACKING POLL OF STATES
HOLDING DEMOCRAT PRIMARY
ELECTIONS ON 2/10/04
---------------------------
Top Four
of Six
Candidates
(Alphabetical) TN VA
---------------------------
Wesley Clark 19 11
Howard Dean 5 10
John Edwards 21 24
John Kerry 45 47
---------------------------
Subtotal 90 92
---------------------------
Other Two 2 5
Undecided * *
---------------------------
*"Leaners" among "undecid-
ed" have been factored in.
May not add to 100% due
to rounding.
---------------------------
Unless this poll is way off -- Zogby's numbers were right on target for
the weekend's festivities (MI, WA and ME) -- tomorrow's race clearly is for
second place. And this "second place" could become a far more important second
place. If Democrats and Kerry wish to get the entire presumptive ticket put
together as quickly as possible, and want the South represented on the ticket, a
good second-place showing by John Edwards tomorrow could go a long way
towards accomplishing it.
(Although Wes Clark also is a Southerner, it's my personal view that
Edwards would play better in the South in a general election than would Clark.)
Before moving to the other side of the aisle, so to speak, to Bush and
the Republicans, here's the Democrat scorecard through the most recent caucuses
and primaries.
------------------------------------------------------
PAST/FUTURE 2004 DEMOCRAT PRIMARY/CAUCUS ACTIVITY*
------------------------------------------------------
Date St. Cau. Pri. Winner Date St. Cau. Pri. Winner
--------------------------- --------------------------
01/19 IA x Kerry 02/14 DC x
01/27 NH x Kerry 02/14 NV x
02/03 AZ x Kerry 02/17 WI x
02/03 DE x Kerry 02/17 HI x
02/03 MO x Kerry 02/24 ID x
02/03 NM x Kerry 02/24 UT x
02/03 ND x Kerry 02/24 CA x
02/03 OK x Clark 03/02 CT x
02/03 SC x Edwards 03/02 GA x
02/07 MI x Kerry 03/02 MD x
02/07 WA x Kerry 03/02 MA x
02/08 ME x Kerry 03/02 MN x
=========================== 03/02 NY x
02/10 TN x 03/02 OH x
02/10 VA x 03/02 RI x
03/02 VT x
------------------------------------------------------
*Depending on the state and the nature of the con-
test, non-winners may still receive some delegates.
------------------------------------------------------
The Elephants
From my 1/26 missive entitled, "Bush Loses!":
"No, I am not predicting George Bush will lose in November. What I am
predicting, though, is that the stock market will begin thinking about the
possibility more seriously than it has. And my guess is that heretofore, the market
has assigned about a zero probability to such an outcome. A transition in
thinking is likely to lead to some turbulence."
There certainly is no evidence of the above phenomenon -- not yet! But I
think it is coming, because I think that in the period not too distant, there
will be the growing realization that Bush is far more vulnerable in November
than has been the perception to date. And believe me, I'm not basing this
view solely or even nearly solely on the President's performance yesterday in his
interview with Tim Russert. I must say, however, that I don't believe this
was one of President Bush's better outings.
To assess potential vulnerability, it makes some sense to look at a
summary of 2000's Presidential outcome. This was an election in which the ticket
winning the popular vote lost the election. It was an election separated and
won by five electoral votes -- 271 to 266. Had Al Gore carried his home state
of Tennessee with its 11 electoral votes, Florida would never have been in
play. You can say the same had he carried Clinton's Arkansas, with its 6
electoral votes.
Or come at it from the other direction. Bush won the popular vote in New
Hampshire by roughly 1%. Had New Hampshire and its mere four electoral votes
gone the other way, the outcome would have been Gore/Lieberman 270,
Bush/Cheney 267. And do not forget for a moment the roll played by Ralph Nader and his
Green Party. Nader/LaDuke captured just under 2.9 million popular votes, the
large majority likely having come from voters who would otherwise have voted
for Gore/Lieberman.
---------------------------------------------
2000 PRESIDENTIAL ELECTION --
POPULAR AND ELECTORAL VOTE SUMMARY*
(Popular Vote in Millions)
---------------------------------------------
Rep. Dem. Green
---------------------------------
Bush/ Gore/ Nader/
Cheney Lieberman LaDuke Total
---------------------------------
Popular* 50.456 51.000 2.883 104.339
48.3% 48.9% 2.8% 100.0%
---------------------------------------------
Electoral# 271 266 0 537
50.4% 49.4% 0.0% 99.8%
---------------------------------------------
Source: Federal Election Committee.
---------------------------------------------
*Based on a Census Bureau estimate, the US
voting-age population in November 2000 was
205.815 million. Therefore, the above three
plus all other Presidential candidates on
various states' ballots received the vote
of 51.3% of the voting-age population.
---------------------------------------------
#There are a total of 538 electoral votes,
apportioned among the states based on each
state's number of senators and house mem-
bers. In addition, the District of Columbia
has three electoral votes. The 2000 tally
does not add to 538, because of the ab-
stention of one DC elector.
---------------------------------------------
The Next Gillespie/Bush Interview
Although it is going on three months since I did the first hypothetical
George Bush interview, I believe it has withstood the test of what has happened
since then quite nicely. In preparation for the next installment, which I
anticipate doing in the next week or two, I am now going back to the 11/21
affair, excerpting some of its highlights.
From 11/21 ("Thank You, Mr. President"):
The (hypothetical) scene [is ... the Oval Office, where a conversation
(hypothetical) between President George W. Bush ("PB") and Doug Gillespie ("DG")
is [in progress].
_____
DG: Mr. President, as I said a moment ago, I am honored to be here.
However, I have no idea why I am here, since your chief of staff would not tell me
the purpose of the meeting.
PB: No, I asked Andy Card not to. I would like this initial chat to be as
informal as possible. I figured the less you prepared, the better it would be
to foster that climate. I would like to discuss some of your views on the
economy, the markets and perhaps a little politics.
DG: That is indeed a broad spectrum. I doubt we will have enough time to
get into all of it too deeply ...
PB: Don't worry, we will have additional meetings and further discussions ...
DG: You are familiar with my work, President Bush?
PB: Let's just say we have a mutual friend who occasionally e-mails some of
your material to me.
DG: So much for copyrights! But if my views can help the
country, you are welcome to them. May I assume that in this and future
discussions, everything is on the table -- no holds barred?
PB: Absolutely! ... A few items have caught my eye. First, I was intrigued
by a "political disclosure" statement you used in one of your pieces. You
claimed to be a Republican "by default." I am not exactly sure what one of those
is.
DG: ...I use the disclosure statement periodically so my clients remain
aware of my personal political proclivities. I try exceedingly hard to see that
these do not bias my analytical judgments. I feel strongly, however, that
since I occasionally write about political matters, people have a right to know
what my personal views in this area are. Frankly, it would be great if
mainstream media people did this, too. I believe it would certainly enhance how
people viewed their intellectual honesty.
As for being a Republican "by default," I believe this is more or less
explained by the next part of the disclosure statement I use, which states that
I consider myself a conservative with a few libertarian leanings. To be
honest, Mr. President, the Republican Party's leftward drift as well as what I
view as its outright cowardice at times in recent years has increasingly turned
me off. Nevertheless, I maintain my Republican registration.
PB: Of what leftward drift and cowardice do you speak?
DG: This conversation is but a few minutes old, and already, we are into
tricky, sensitive territory. But since everything is on the table, I will tell
you that I believe much of your domestic program has set a tone of significant
leftward drift.
As for just one example of cowardice, I think the way Senate Republicans
have handled the confirmation process of some of your more visible,
high-level judicial appointments is an abomination! I realize the situation took a
different twist last week, with the Republican leadership trying the marathon
session. But I fear this was nothing more than a cosmetic charade with no
staying power, an attempt to appease the "base." If so, I believe it could backfire
-- badly!
Speaking of the base, I sense, Mr. President, that all this could put
you at some risk regarding support from your base next November. And I would be
remiss not to include your so-called "new tone." The latter has done nothing
whatsoever to foster Democrat respect or cooperation, but it has bothered
many of the Republican Party faithful a great deal to see how willing you have
been to take such enormous abuse from the other side. Of course, I'm sure Karl
Rove strenuously disagrees with my assessment.
PB: At the moment, Karl thinks the situation for next year is looking
exceptionally solid. You don't, Doug?
DG: Please take this the way it is intended, Mr. President, which is
constructively, but this was also the assessment in 1991 regarding your father's
prospects for the 1992 election. I believe there could be some similarities at
work.
PB: I sure hope not!
DG: May I make a suggestion? Perhaps we can get into a discussion of the
economy and financial markets and leave a more intense discussion of politics
for one of our future meetings. There will still be plenty of tangential
overlap between the two areas anyway.
PB: Yes, that is fine. And I promise we will get together soon on the
political stuff. Since your views regarding my political future are downbeat, I
certainly want to hear them.
DG: Not downbeat, Mr. President, maybe just a little more circumspect than
the ones you hear most often. Along these lines, let me say that I don't think
you are always well served by the legion of conservative cheerleaders in the
land of talk radio. And remember, this opinion comes from someone who not
only is a political conservative, but who also is a conservative talk-radio
junkie!
PB: Fair enough, Doug. But before we move on to the economy, please give me
your quick thoughts on Iraq.
DG: This is impossible for "quick thoughts," Mr. President, and likely lends
itself to an additional meeting devoted solely to the subject. In a
nutshell, however, I believe Iraq poses a serious problem for you.
PB: How serious?
DG: Very serious!
PB: Well then it is a done deal ... we shall have another meeting devoted
to Iraq -- soon, too.
DG: I look forward to it, Mr. President.
PB: Okay, it's off to the economy, although I'm afraid my next question gets
back to domestic politics ... Something you wrote -- in May, as I recall --
suggested a fifth term for Alan Greenspan as Federal Reserve chairman just
might cost me a second term as President.
DG: I did indeed write that -- and believed it, too. I still do believe it.
In fact, since then, I refined the thought a little more, to wit: Wouldn't
it be an incredible irony if the person responsible for Greenspan's fifth term
were denied a second term for himself as a result of the decision?
PB: The financial markets applauded the view I expressed in April, that
Chairman Greenspan deserved another term. I take it you did and do not.
DG: I definitely do not. On several occasions in my work, I have stated
unequivocally the view that in the fullness of time, Alan Greenspan would become
one of the great pariahs in financial-market history.
PB: That's a pretty strong statement, Doug.
DG: It is indeed, but it is not lightly made. My acquaintance with and
knowledge of Alan Greenspan go way back to the late 1960s, when he was in the
private sector running the economic consulting firm of Townsend-Greenspan &
Company. Thus, my opinions have evolved over a long period. As for the markets
applauding your April pronouncement regarding a fifth term for Greenspan, how can
I state this delicately? Well, let's just say there is a reason that in some
quarters, Greenspan is known as, "Uncle Al, Wall Street's Pal."
In assessing Greenspan's performance in office, I also have another
yardstick -- William McChesney Martin, Jr. ... Mr. Martin was Fed chairman while I
was in college. In fact, as you are undoubtedly aware, he was, to date, the
longest-standing chairman in the Fed's history -- 1951 through 1970. Since I
had several courses in college dealing with the Federal Reserve System, I
became increasingly knowledgeable about the central bank's then-chairman.
...I had the great privilege to work with Mr. Martin after he left the
Fed in 1970. That involvement was an interesting one, and I want to share some
additional thoughts on Bill Martin, since in my view, he was a great Fed
chairman for many of the reasons Alan Greenspan is not. Let's just say that if
Alan Greenspan were here right now, I would be tempted to adopt Senator Bentsen's
tact when he was debating Vice President Quayle during the 1988 campaign,
when the name of former President Kennedy came up. I would say: "Chairman
Greenspan, I knew and worked with William McChesney Martin, Jr. You, sir, are no
Bill Martin!"
PB: ...I would like to hear more about Mr. Martin. And for obvious reasons,
you have seriously aroused my interest in Alan Greenspan. Can we discuss
him some more?
DG: Certainly, Mr. President, but how are we fixed for time?
PB: Actually, not too good ...
DG: Well if it is okay with you, President Bush, let's do this. Let's
finish today's session by my outlining several thoughts in as much a summary
fashion as possible. I see that you have been taking copious notes, so we won't
have any difficulty coming back to these, as well as the earlier material, to
discuss it all in greater detail, when time permits.
PB: That's a good idea, Doug.
DG: I'll try to keep the following in a logical chronological order. Pardon
me, however, if I do not succeed.
* With respect to the stock market, I entered the "secular bear" camp in
2000; that is where I remain.
* In this regard, I have believed the secular bear could wind up playing
out a lot like the 1965 to 1982 experience. While the current episode might
not run that long, I believe it probably still has years yet to go ...
* This said, I think you have to be careful with terminology. During
the summer of 2002, very close to the July lows, I became highly constructive on
the stock market. I emphatically reiterated my positive views as marginal
new lows were made in October of 2002, and I did so again when the market was
being taken apart in March of this year. In fact, in March, when most of Wall
Street was extraordinarily morose and many analysts were predicting that 2003
would be the first time since the horrible days of 1929 through 1932 that the
stock market would decline four calendar years in a row, I went vociferously in
the opposite direction. I'm pleased to report that I turned out to be
correct -- and for mostly the right reasons, too!
* So how could I, a secular bear, be a bull? This is where terminology
comes into play, since a secular bear market will experience cyclical bullish
episodes. That is all I think we've been having. I also believe it has run
its course or is just about to. In fact, President Bush, from a purely
selfish, political perspective, you should be rooting for a pretty severe correction
ASAP. I realize this probably sounds peculiar if not anathema, but I will get
back to why I think this is in a moment.
* When I opted for the secular bear case in 2000, I opined that before
it was over, there would -- at minimum -- be a reversion to the mean when it
came to valuations. But I also invoked Charles Dow's work of the late 1800s,
which stated in general terms that long periods of overvaluation had a tendency
to be followed by a period in which stocks became undervalued, all based on
historical norms. Furthermore, the degree of overvaluation somewhat dictated
the subsequent degree of undervaluation. And no one really disputes that at
their peak, valuations in the present situation were extreme.
* But valuations were and remain even worse than they appear, because of
the formidable controversy surrounding the quality of reported earnings. I
am sure I need not tell you, Mr. President, that versus a couple decades ago,
the accounting conventions producing today's earnings stink! It is way more
than "aggressive" accounting, as many of the unfolding scandals are
illustrating, and these abuses have tended to make valuations look a good deal more
temperate than they really were or are.
* A key ingredient swinging me over to the secular bear camp in 2000
were the many excesses that had developed in both the US and world economies.
Worldwide overcapacity and the huge debt overhang here in the United States were
just a couple factors. Another one, and a huge one at that, was what by mid
1999 I had classified as the "Y2K hoax." Alan Greenspan's imprimatur on this
was enormous, as were the economic consequences.
* I could go on at considerable length in this area, Mr. President, but
I shall leave that to your wishes in future meetings. Let's just say that the
kind of excesses that developed -- the several "bubbles" put in place by what
I believe were bad monetary-policy decisions that were often politically
driven -- simply do not get worked out of the system either easily or fast.
* What primarily is it that redresses these structural impediments? In
my view, it is the passage of time and the operation of free and open markets.
For instance, corporate bankruptcies, then the tedious process of
reorganizations, etc.
* But as I said earlier, this takes time, which can and frequently does
put the process at odds with political considerations and schedules. I
believe decent progress was being made, but I also think Greenspan's behavior
earlier this year has helped create new bubbles -- or maybe just aggravate old,
still-unresolved ones would be a better way of stating it.
* And this is where you likely played a role, President Bush. I realize
you wanted Greenspan on board to help with getting the tax cut through.
April's nod on a fifth term accomplished this in quick order. And I emphasize
"quick." I must tell you, though, that I was not impressed with how fast
Greenspan flipped from speaking against the tax cut to becoming a champion of it. It
spoke volumes about how easily a quid pro quo could change his personal
convictions, not to mention what it said about how little if any of the Federal
Reserve's historical independence remained intact.
Which gets me back to the stock market for a moment, as it relates to
your personal political interests.
* Unfortunately, Americans do not possess a high level of basic economic
knowledge. Even more unfortunate is that much of this results from the
general dumbing down of the nation's educational system. We'll leave that for
another discussion, however.
The point here is that many people key off the stock market as a
measure of how well the economy is doing in current terms. Or how well the economy
is not doing. Thus, the market's rally clearly is creating some of the
better attitudes in this area. But the converse would surely be true. A
substantial setback in the market would influence attitudes about the economy in the
reverse direction, which would likely have an adverse political impact on you.
Much if not most of Wall Street is out propounding the idea that on
balance, the stock market will simply keep on going up, certainly through next
year's election. Maybe, maybe not, Mr. President, but my personal view is
quite different. I believe there will be no new highs in the popular, visible
bellwether measures possibly if not probably for years, measured against the
year-2000 record highs. Moreover, I can easily envision a setback of at least 15%
to 20% from the recovery highs in these measures in coming months.
...If I turn out to be correct about the 15% to 20% setback, when it
occurs could be highly critical to you. As a purely selfish political
consideration, the sooner the better! Because were it to occur, say, in the late spring
or early summer of next year, I believe the event would bring with it onerous
political consequences.
* At some point, Mr. President, we should speak in more depth about the
Wall Street scandals. In a nutshell now, they are pervasive, alarming, cannot
be swept under the carpet, and despite individual investors' current blase
reaction to them, the scandals represent a huge threat to the well-being of the
financial markets.
* I will wrap today's session up with some terse views on the economy.
* I believe many analysts took the +7.2% [now 8.2%] advance estimate of
third-quarter gross domestic product and ran much too far too fast with it.
Even now, some are beginning to throttle back a little, which I believe is the
right thing to do.
* Nevertheless, there are many folks using a 5% estimate for real GDP
growth next year [2004] ... This would require upwards of a $500-billion
increase in real gross domestic product, in turn, requiring growth of something
around $350 billion in personal consumption expenditures. Look as I might, Mr.
President, I cannot come up with either figure.
* ...It is my personal view that much of what contributed to the
reported third-quarter spike in growth was at least partially nonrecurring.
Certainly much of the influence from the tax cut was. And there was also a major
contribution from mortgage refinancings during the quarter, resulting from the
interest-rate cabal Greenspan unleashed during the second quarter. We'll discuss
this "cabal" in more detail in the future.
* There has been much talk of and concern about deflation in recent
months, a lot of it being inflamed by Greenspan's just-mentioned cabal that took
place back in the late spring and early summer. Deflation might become a
serious problem down the road. But if there is a surprise in coming months on the
inflation/deflation front, I suspect it will be coming from the former, not
the latter.
* In this regard, the Federal Reserve is probably not being too
judicious in keeping the Federal Funds Rate pegged below the current inflation rate,
as measured by the Consumer Price Index. And the CPI has been pretty badly
butchered over the last decade. I certainly don't think it measures very well
the average family's actual experience with rising living costs.
* I believe it is more than interesting that two Western central banks
-- the Reserve Bank of Australia and the Bank of England -- have actually
raised their administered interest rates in recent weeks. In both instances, the
banks cited concerns about future inflation as one of the reasons they acted.
* Of one thing I am reasonably certain, Mr. President. Were the Fed not
pegging the Federal Funds Rate at 1%, the general level of short-term
interest rates would be higher than it is. I'm not out championing the cause of
higher interest rates. On the other hand, we preach incessantly about the virtues
of free markets to all the world's developing nations. You will pardon me,
sir, for seeing just a touch of hypocrisy in this.
* And something to consider on the interest-rate front is the
devastation that short-term interest rates that all but certainly are artificially too
low have caused to savers -- particularly older one -- as well as to endowed
institutions such as colleges. I wonder if there might not be some political
price for this?
Well, President Bush, I see your secretary beckoning you for your next
meeting.
PB: Yes, Doug, I must run along now. But this has given me a great deal of
food for thought. I appreciate your candor, and I very much look forward to
our next get-together ... Thanks very much, Doug.
DG: Thank you, Mr. President.
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