Nearly two years into his presidency, George W. Bush may finally be getting it. He talked about Iraq on TV and said he would intervene in the dockworkers’ lockout, and Wall Street actually rallied. Maybe this is the beginning of a new era where investors don’t shrink back in horror when the President opens his mouth.
The world at large would not have predicted that the Bush Administration would come to be loathed by the financial community. Bush comes from oil money, with a background that doesn’t consider it a sin to make a profit. Dick Cheney, Don Rumsfeld, and Paul O’Neill were all CEOs of Fortune 500 companies. Condoleezza Rice had a Conoco supertanker named after her.
Guess what? In 2001, all this added up to nothing. These guys are all from a world that went out of fashion when G.W.’s dad made that disastrous trip to Japan with all those cranky old auto executives. The oil business (Bush, Cheney, Rice) is important, but it’s a commodity and no one thinks much about the people running those companies. Jack Welch (GE), Lou Gerstner (IBM), and Sandy Warner (J.P. Morgan) were all retiring around the time Bush put together his team. Instead of getting positions in the Bush White House, they’re waiting for Augusta National to reopen so they can fight with women’s’ groups.
In contrast, look at how the Street loved Bill Clinton, and how strange that was. Here was a guy who never held a private job, never balanced a checkbook, had to blame his wife for the family’s shady deals, and had his personal finances in such sorry shape that his main post-presidential goal was paying his gigantic legal bills. Minorities and the poor, who expect a Democratic president to “stick it to the rich,” adored him.
How did Clinton become a friend of Big Business, while Bush gets lots of campaign contributions but seemingly little respect? Financial markets are only secondarily concerned with policy. Expectations are much more important. By the time policy happens, it has been reflected in the price of stocks, bonds, and anything else traders are trafficking. If you are predictable, and can meet or exceed expectations, you can make friends on Wall Street. Clinton was less of a disaster than expected, so they liked him. Bush came in with all those pro-business expectations, so he couldn’t help but have trouble delivering.
Clinton’s emissaries also had the Street’s respect. Other than redesigning the currency, I couldn’t tell you exactly what Bob Rubin did as Treasury Secretary, but he hung out a lot in New York and gave the impression that the Administration was interested in any threats to the economy. It looked like Clinton and Rubin were paying attention, and that inspired confidence.
Paul O’Neill has been a disaster as Treasury Secretary. Again, I couldn’t tell you anything he should have done, or anything he didn’t do, but the guy just seems way out of touch. He used to be CEO of Alcoa, but that hasn’t meant anything since the Seventies. And he has this odd knack for being far away from the scene whenever the cameras are rolling.
Where is he during this dockworkers’ lockout? On Monday, he said, at a meeting with the Greater Phoenix Chamber of Commerce in Scottsdale, that he thought the President would intervene. Scottsdale? I’m in Scottsdale and, let me tell you, O’Neill would be closer to the action if he were in Southeast Asia. Scottsdale is where you go when you want to exit from the financial markets.
SOMEHOW, HOWEVER, BUSH APPEARS to have righted the ship. He went on TV Monday night to make his case for Iraq. The overnight markets liked that. On Tuesday, when he said he would intervene in the dockworkers’ situation, the market actually rallied.
Internationally, Bush is garnering respect the way Ronald Reagan did, by acting like an irrational kook unafraid of a little carnage. That scared the Russians out of the Arms Race, the Cold War, and, eventually, Communism. Bush has done everything to start a fight with Saddam Hussein but wear fatigues and grip a Gerber Mini-Magnum between his teeth. In the short term, that behavior also tends to scare allies and the investment community.
But after a little while, the allies come around. You always want to be on the good side of a violent nut. And as each day goes by and the world doesn’t come to an end, the business world becomes more relieved. By declaring that he wasn’t going to war with Iraq immediately, Bush beat Wall Street’s expectations.
As for the labor issue, that was a no-brainer. The labor vote has been about as relevant as the aluminum industry, so Bush isn’t going to get in any political trouble by taking away the dockworkers’ weapon of refusing to work without a contract or conducting a work slowdown. Besides, with the traditionally pro-Democrat high-tech business at the mercy of the West Coast dockworkers, he is likely to gain as many Democratic friends as he loses with this one.
The important question is whether Bush can maintain this momentum. He could, but I’m betting against it. He’s not going to get too many softballs like the dockworkers, and he’s going to have to put down the hammer on Saddam one of these days. But he could earn huge points by taking a decisive stand on cleaning up the financial markets. Actions going forward are more important than leading off former CEOs in manacles. Harvey Pitt, the SEC Chairman, is bright enough to come up with a better set of rules for corporate disclosure, but these rules will anger the Old Guard among Bush’s constituency. That’s what makes it a brilliant move. Clinton constantly let down the Old Guard Democrats, and remained popular with the electorate at-large even through his impeachment.
And Paul O’Neill has to go. The Treasury Secretary, without doing much, can buy the President a lot of credibility in the financial community, and O’Neill just isn’t cutting it. Unfortunately, Bush isn’t the kind of guy who will remove someone just because everybody else wants him out; he inherited this trait from his Dad.
Let’s just say that Bush should give O’Neill a different job after the November elections, and get himself a Twenty-First Century Treasury Secretary. If you want to see stock market euphoria, he should pick Bill Gates.
Now that would turn some heads.