- The Washington Times - Wednesday, January 26, 2005

Wall Street’s bearish mood in the first three weeks of January suggests the high anxiety hangover from the bubble collapse of the roaring ‘90s has not completely disappeared.

The financial markets’ insecurities seemed to be put to rest after President Bush’s reassuring re-election, setting the stage for a nice holiday rally that sent the Dow to nearly 10,900. Postwar Iraq, while still troubling, remained relatively stable, oil prices had abated somewhat, employment was rising, and the U.S. economic growth, as measured by the gross domestic product (GDP), was running at a robust 4 percent.

But some old fears, along with some new ones, popped up this month among the big institutional investment firms: Fear of a disappointing election turnout in Iraq that would give anti-democracy terrorists a big victory; fear of rising oil prices undermining economic growth; fear of that old bugaboo, inflation, showing its ugly head; and, finally, just a bad case of the jitters that ripples through the stock market.

As this is written, the Dow is down more than 500 points to 10,368, year-to-date minuses were all over the stock and mutual fund pages, and highly paid investment strategists said the market awaited some good news to shake its lethargy.

But there are more reasons the economy should continue its upward climb than there are anxieties on Wall Street.

Despite fear of inflation, there isn’t much of it in the core of the economy, outside the volatile energy and food sectors.

Fearmongers have predicted a slowing in the global economy because of rising oil prices, but there is no consistent evidence for that. Besides, higher oil and gas prices will make alternative sources of fuel, and the new hybrid autos, more popular and open a whole new growth industry.

And no one can look at the quarterly business earnings reports of the last few weeks and not be impressed by some very bullish growth numbers: American Express, lifted by stronger consumer purchasing, saw its fourth-quarter profits rise 17 percent. Even hard-pressed U.S. Steel, in a major turnaround, reported a fourth-quarter profit, after a year of losses, due to cut costs and much more favorable global steel markets.

Consumer confidence, too, is up, with people expressing belief their financial situation will improve this year over last.

As for the coming Iraqi elections, by all accounts voter turnout will be substantial — probably much higher than voter turnout in our own elections — despite stepped-up terrorist violence.

Mr. Bush’s Inaugural address said there is one force throughout human history that has broken tyrants’ “reign of hatred and resentment” — “and that is the force of human freedom.” That force will be in full display in Iraq Sunday and will deal terrorists a major blow that could send financial markets soaring.

Another reason for the markets to turn up is the continuing decline in the budget deficit, despite Tuesday’s gloomy 10-year report from the Congressional Budget Office. Static, 10-year projections aren’t worth the paper they are printed on. Mr. Bush will submit a very tough fiscal 2006 budget plan that, with higher expected revenues, will keep the deficit on a downward trajectory.

Finally, there is the legislative agenda outlined this week by Republican leaders that has economic growth written all over it and that stands a very good chance of passage in the new Congress. Among its provisions:

• Overhaul the tax code to lower the rates and make it simpler and more pro-growth.

• Make the 2001 and 2003 tax cuts permanent.

• Add a personal investment retirement plan to the Social Security system that will boost the stock and bond markets and theoretically make American workers wealthier.

• Limit class-action lawsuits.

• And expand domestic oil production on U.S. lands.

Not everything the administration wants will get through this Congress. There will no doubt be some roadblocks between now and the 2006 midterm elections. But the president’s State of the Union address will call on lawmakers to act. A strengthened GOP majority in both houses, especially in the Senate, seems eager to begin putting bills on Mr. Bush’s desk, starting with the long-delayed lawsuit-reform bill.

So don’t be fooled by the nightly TV news shows, where an unending parade of talking heads and the reporters who interview them give every reason imaginable why Mr. Bush’s agenda will fail and none why he just might succeed.

There’s something else driving the president’s agenda that these news programs miss. It’s called a mandate. Mr. Bush won it by a margin of nearly 4 million votes.

That’s why there are plenty of reasons for markets to turn bullish again and for bears to return to a long winter slumber.

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

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