Tuesday, October 11, 2005

Cramer v. Cramer

James Cramer pulls his head out of his gold-covered ass last week just long enough to tell us to put our heads between our legs to kiss our own asses goodbye:

It’s dawning on wall street that George W. Bush may be the first president since Lyndon B. Johnson who believes that we can have a guns-and-butter federal spending policy without creating a serious inflation spiral, if not outright government bankruptcy. At least LBJ, to his credit, believed that there were limits to profligacy and that taxes had to be raised. Not President Bush. He’s making Johnson look like a fiscal conservative, what with his insistence on waging a war in Iraq that’s costing $177 million a day and rebuilding New Orleans by taking on a monstrous load of federal debt.

For the longest time, because Bush is a Republican, we on Wall Street simply didn’t believe that he could be a reckless spender. We knew only two paradigms: You either spent less and cut taxes or you spent more and raised taxes. Both courses at least presumed some sacrifice at some time. Not Bush’s plan. He’s gone on both the biggest spending binge and the lowest taxation course in U.S. history, which, alas, will produce gigantic liabilities down the road. Of course, he’ll be back on the ranch by the time his successor will have to deal with his inflation and currency debasement. Our only hope that financial disaster won’t strike sooner lies with the Chinese, who actually fund our deficit by buying our Treasuries—$242 billion worth, or 12 percent of all foreign holdings. If the Chinese decide to be good communists and stop buying our bonds, the Feds will have to raise rates to attract new investors and the reaper will be at our doorstep with interest rates more akin to those of South than North America. Right now, it’s not a problem. But in a year or two or maybe less, I perceive that the government will throw a bond auction and nobody will show, including the Chinese, until rates shoot up dramatically.

Look, I don’t know how bad things are going to get. Fortunately, you can do only so much damage to the deficit in three years’ time. But considering Bush has never vetoed a spending bill and would rather die than raise taxes, you have to believe we’d be just plain stupid to make a huge 401(k) bet on strictly domestic stocks. I’m not waiting until the Chinese decide to walk away from the Treasuries table. I’d start buying these stocks now, even if I were a Republican.

Well, thanks, and thanks for the helpful hints in the article to survive the fallout--like buying shares in foreign companies that deal in hard assets like gold. But Mr. Cramer, sir, how the hell did we get into this mess in the first place? Maybe the relentless cheerleading in the face of common sense by guys like...James Cramer! had something to do with it:

To listen to the critics of President Bush's economic policies, you'd think that the nation's on the brink of economic catastrophe. Not a single Democratic candidate is willing to accept, even for a moment, that the president might be on the right economic track with large deficit spending and lower income and investment taxes.

Wait a second. I'm a Democrat, one who helped raise hundreds of thousands of dollars for Democratic candidates nationally in the last two decades. I voted for Al Gore. But I'm also an objective financial commentator. With stocks at two-year highs and interest rates, as represented by the 10-year treasury, hovering near all-time lows, I can't help reach a different conclusion from Mr. Bush's critics: The economic policies pursued by this president have been a stunning empirical success.

If you'd told me two years ago, in the wake of 9/11 and the collapse of the stock bubble, that we could have 8% GDP growth, I'd have laughed. Most commentators, even the optimistic ones, were worried about the U.S. repeating Japan's post-bubble-incredible-shrinking- GDP-depression-experience. If you'd told me we could have 8% GDP growth and long-term rates at 4%, I'd have said that such a combination was impossibly Pollyannaish, a proverbial smooth concoction of oil and water. And if you'd told me that we could have a robust stock market, with a broad array of 52-week highs in dozens of sectors, I'd have told you that you were dreaming. Not after the battering this country's equities had taken.


So, critics, keep baying against the policies. Keep calling for higher taxes or fiscal responsibility. But as someone who's stuck looking at the daily scorecard as represented by the impossible-to-manipulate markets themselves, the judgment's already in: The Bush economic policies have worked beyond what anyone could have hoped for. (1/15/04).


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