Do you remember the early days of the Bush administration? Back when the Democrats accused Republicans of talking down the economy? It turned out that we really were in a recession, and that a stimulus was required to help bring us out of it.

Now, it seems, Democrats are talking down the economy and the stock market. Investors are taking major hits. People who were looking forward to retiring are now looking at working for several years longer.
What are the motivations for this behavior?

I believe that the President, back in 2001, wanted to avoid a deep recession becoming the hallmark of his presidency, and acted quickly (with the support of both houses of Congress) to do what could be done by the government. The Fed acted in concert, perhaps concerned that the interest rate increases of 2000 were too much, too quickly, for the economy to take.

Now, the Fed is standing pat, having shot most of its bolts. Interest rates are more than low enough, if only businesspeople would borrow to make investments.

However, we are caught in the quarterly numbers trap. For many years, businesspeople have warned that business is becoming too beholden to next quarter’s profit and forecast data. Even mighty Microsoft has to beat the whisper numbers and year to year comparisons, no matter how much it invests in new initiatives that will, eventually, bring in more revenue and profit.

With this sort of scrutiny, coupled with terrorist jitters, corporate scandals that affect the most admired of companies (Enron, Fortune magazine’s poster child), and perhaps most nefariously, lack of pricing power, it is no wonder that the stock market averages are dropping like stones.

The Democrats, concerned only with winning, are not helping. They appear to have Republicans running away from good ideas like Social Security privatization. They appear to have a super majority forming in Congress that will pass any new corporate reporting/accounting regulatory bill that can be cobbled together--no matter the unintended consequences. Even John McCain now opposes stock options. How many political contributions were paid with those options in the "roaring '90s"?

Investor psychology is shot. I really wish my broker would have put me in Ginnie Mae issues back in March of 2001 when I asked him to. I’d be sleeping like a baby, earning about 7%.

As for what is next, I predict plenty of demagoguery, seasoned with overlarge helpings of attacks on President Bush’s Harken energy record. As to that, if you file the form saying you are going to sell stock, is it so critical to file the form saying that you sold the stock? I think the disclosure for most investors who pay attention has taken place. There's no there there--sorry Washington Post and New York Times.