10 days ago I raised the spectre of a Dow 6000 on CNBC. Now, we are one third of the way there, and the trend remains down. I continue to advise cash and warn anybody not to get sucked in to the latest Gold Rush. Now, here's what's on my mind:
There certainly was a lot to be angry about with respect to the Bush administration. However, one of the biggest things that really ticked me off is something that hardly anybody seemed to notice.
This was the malign neglect of the Bush administration with respect to the rise of China. Between 2001 and 2008, China just kicked America's ass in the international marketplace, largely because of China's set of unfair trade practices, most egregiously its massive export subsidies and currency manipulation.
Blinded by its own free-market ideology and grandly distracted by events in the Middle East, Bush & Co. almost single-handedly dismantled the American economy and left invulnerable to the mess it is in by ignoring China policy.
Now, my worst fear about the Obama administration is that it also will be grandly distracted by its own financial version of Baghdad and fail to realize that any long-run road to economic prosperity in the United States must travel squarely through a reform of US-China trade relations. To put this argument most simply, America's economy can recover over the longer-term without a strong industrial base, and America can't develop a strong industrial base as long as China keeps cheating in the international trade arena.
Exhibit A of this problem and this administration's malign neglect of the China issue is the news of a government-orchestrated consolidation of the Chinese iron and steel industry. This consolidation will make the industrial policy days of Japan, Inc. look like Halcyon days of Adam Smith. I can't tell you what a serious threat this latest manifestation of Chinese protectionism is likely to pose to this country.
Over the past six years, the Chinese steel industry has been growing at an unbelievable pace. Any damn fool, except those running the Bush administration, could have seen that coming glut in Chinese steel and the threat that glut would eventually pose to our own industrial base and domestic steel industry. However, my guess is that the Obama administration won't even register this latest China event on its radar screen, distracted as it is by the worsening economy and its own stupid missteps.
And speaking of stupid, White House Press Sec. Robert Gibbs has got to get the award of the week -- and possibly for the year on the stupid front. In a press conference briefing, Gibbs called out CNBC analyst Rick Santelli and accused Santelli of not "understanding" the latest piece of legislative crap from this administration.
I've never personally met Santelli, but I can tell you this. Of all the financial market commentators on the air, he is damn well the smartest; and anybody who accuses him of disagreeing with them on the grounds of a lack of understanding of an issue is living on another planet. What the hell does Robert Gibbs know about the financial markets anyway? If that dude had to make his living trading options in the Chicago pits, you would've vanished into thin air long ago. As for Santelli, he is the only commentator I know that I would trust to manage my portfolio.
And one more take on Santelli: I regularly use video clips of him when I teach macroeconomics to MBA students at the University of California-Irvine. I use these clips because they often show the most sophisticated form of analysis -- precisely the kind you need to understand the complex relationships between economic events and financial market movements.
I'm sure that John McCain could not be doing any better as president than Barack Obama. It was clear from the campaign that McCain did not have a very deep grasp of economics. It is extremely troubling however that Obama and his economic team are having such a difficulty getting traction. I for one never thought that Larry Summers walked on water at Harvard. Read his stuff and it is straight out of a Keynesian textbook -- nothing particularly flashy or brilliant.
As for Treasury Secretary Tim Geitner, if you want a really good comparison, go take another look at the movie The Caine Mutiny. Captain Queeg Geitner is simply too tight when he gets on TV and therefore does not inspire any confidence. Nor do his policies, at least yet.
If I had any advice for Barack Obama, I would tell him to quietly arrange a meeting with Martin Feldstein and Rick Santelli. Between the two of them, maybe they could straighten the White House out.
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