- The Washington Times - Wednesday, April 20, 2005

The relentlessly pessimistic mood on Wall Street has cast a dark shadow across the country, the political landscape and global markets as well.

The financial markets’ inability to shake off its almost clinical depression has rattled Americans, eroded consumer confidence, worsened President Bush’s job approval score on the economy and is undermining the once-popular idea of letting workers invest some of their payroll taxes in stocks to realize a higher return on their money.

The markets have been roiled for weeks as new fears emerged almost daily — fear of rising oil prices, of inflation, of whether the thriving housing market would burst, of a downturn in the economy, of an overheated economy, and even fear of fear itself, to paraphrase Franklin D. Roosevelt’s famous admonition.

It wasn’t so long ago that the bulls ran on Wall Street and the Dow skirted 11,000 as inflationary fears subsided, Iraq’s instability receded after an unbelievably successful election, inflation appeared tame here at home, employment was rising, and global markets were emerging everywhere.

Then the financial markets began turning bearish again and the doom-and-gloomers were looking for every economic boogeyman they could find to justify their fears.

Last week’s abrupt decline saw the Dow plunge nearly 400 points, ending with a 191-point drop on Friday, the biggest one-day loss since May 19, 2003. When the bell closed the markets Monday, the Dow was just barely above 10,000, as brave buy-and-hold stockholders helplessly watched their retirement investments lose their value.

The markets appeared to be stabilizing Tuesday, as core price inflation numbers and stronger earnings reports soothed Wall Street anxieties, at least temporarily.

As President Bush said in a CNBC interview Tuesday meant to calm jittery markets, the economy’s fundamentals remain solid and did not justify last week’s sell-off. As Arthur Hogan, chief market strategist at Wall Street’s Jefferies & Co., said last week, “The punishment probably did not fit the crime.”

Similarly calmer voices said this month’s panic was driven by emotion and fear. Stephen Massocca, chief equity trader at Pacific Growth Equities in San Francisco told The Washington Post that the “irrational exuberance” of the 1990s had been replaced by “irrational pessimism.”

“Skepticism is running amok,” he said. “I think we are at an inflection point and that all this pessimism is very much overdone.” John O’Donoghue, co-director of stock trading at Credit Suissee First Boston, agreed. For the most part, he said, “People are just throwing the baby out with the bath water.”

To be sure, there was no rationale reason for the sell-off that struck Wall Street and drove European and Asian markets down on fears of a U.S.-led global economic decline.

The spike in oil prices and gasoline, which we’ve been through before, were of course worrisome. But there were indications oil may have hit its highs for now and that OPEC’s decision to boost output will significantly increase future supply.

The latest energy numbers show a glut of oil on the market. Global energy demands of course will continue rising, but I think we will see a faster supply increase that will reduce prices.

Tuesday’s government price index showed, as expected, that inflation is rising but that, when volatile energy costs are removed, the core price level is modest. Moreover, the stock markets have underestimated the unique ability of U.S. businesses to increase productivity and cut their costs to boost profits. That anti-inflation trend won’t end anytime soon.

The biggest news on the economic front, the reason for the president’s bullishness, has been corporate earnings. Wall Street coldly dismissed last week’s stronger earnings reports from General Electric, Pepsi, Citigroup and Apple Computer. But this week’s continuing flow of positive earnings was too much even for diehard pessimists to ignore.

But what about our trade deficit, another number that has the pessimists reaching for their tranquilizers? The Wall Street Journal’s late, great editor Robert Bartley used to say this was the silliest figure kept by the feds. It is hitting record levels, but that is a reflection of U.S. economic strength and affluence, rather than any weakness in an $11 trillion-a-year economy.

The other day, CNN’s Lou Dobbs said, “We don’t make much of anything anymore.” Actually, the U.S. sold more than $1 trillion in goods and services abroad last year. We buy a lot from abroad, but Europe and Japan buy less from us because their economies are weakened by excessive taxation and regulation.

The U.S. economy grew better than 4 percent last year, the jobless rate has fallen to nearly 5 percent, interest rates are still relatively low, corporate earnings are up, and U.S. businesses are going global at the fastest rate in our history.

It’s enough to drive a pessimist crazy. Is it enough to drive the bears back to their caves?

Donald Lambro, chief political correspondent of The Washington Times, is a nationally syndicated columnist.

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