Wisdom Without Waiting: Wall Street, Washington and Alan Greenspan - The Three Stooges of the Impending Recession
© John L. Mariotti 2001
The Three Stooges made a lasting reputation for punching each other, hitting each other on the head with various objects and poking each other's eyes. The trio in the title of this column are doing this too-except the ones feeling the pain are the citizens-the working men and women-of the US.
Wall Street was the first stooge, with too many avaricious investment brokers and bankers touting phony stocks to incredible levels. (They used to call this "fraud" or "snake oil" and run these kind out of town!) Their actions drove legitimate companies to strive for unrealistic gains in sales and earnings just to sustain their stock prices at parity with the loonies from the dot-coms and e-commerce IPOs. Third graders knew those P/Es and market capitalizations were crazy.
Then the second stooge, Washington-you know, the politicians-had to play their games. Is George W. Bush's (so-called) $1.3 trillion tax cut really all that much too large. Who on earth knows? Predicting the US economy is just slightly easier than getting precisely accurate long-term weather forecasts. Who knows what the marginal rate cuts Bush proposes will cost in 2005-2009? Of course the Democrats have to oppose it-otherwise there would be no reason for the "opposition party" to raise funds for the next election. Forget wiping out the inheritance tax Mr. President, and get the marginal cuts into effect before summer.
Then comes the third stooge, aka the wizard of interest rates, Alan Greenspan. He has been a good Fed Chairman, but he only a little better at forecasting than the other two stooges, or the National Weather Service. It is just that he can cause storms by his action-or in this case inaction. Even the aforementioned 3 Stooges could see the storm clouds gathering before Greenspan's Fed began to cut interest rates. And now he's being coy about it!
Sure the stock market was at unrealistic levels but the crashes of the dot-coms and the natural declines in earnings would have taken care of that without the poke in the eye from Washington and Greenspan. And that is without OPEC's help-thanks to former President Clinton's non-policy on Energy-he was too busy shopping for houses, furniture, offices, and people to pardon to tend the energy store.
What does this have to do with management? Simply everything! Systems are now better than ever to manage inventories, control costs, and react to market conditions. What should any responsible manager do when the 3 Stooges are making policy? Batten down the hatches and prepare to weather the storm. That means cut production, cancel orders, lay off people, and practice watchful waiting. So they did-even Jack Welch's GE, and John Chamber's Cisco.
Of course consumer confidence stinks. The stock market's illusory wealth is gone now. Layoffs, while not all that large, are in the headlines. Consumers are smart, too. They just quit spending. Talk about a self-fulfilling prophecy.
Now, what is the punch line? This "recession" or "adjustment" or whatever you call it will be short lived-perhaps only a quarter or two more. The 3 Stooges are now pointed the other way-toward stimulus. Earnings have dropped so much that analyst estimates and company P/Es are coming back to reality. Soon, maybe as soon as the third quarter 2001 earnings reports, some companies will start beating the new, lower estimates.
The investment money has to go somewhere, so go it will. Those who hang on to their investments and wait it out-assuming their investments were based on value, not hype-will be fine by next year at this time. It won't be at the delusionary levels of March last year, but neither will it be at the devastating lows of this March.
And the managers-they will be ready to turn on the factories when consumers come out like the summer flowers. Wait and see, but next time don't trust it all to Wall Street, Washington, and Alan Greenspan. Depend on your own good sense. Don't let the 3 Stooges poke you in the eye-you only get a recession if you cause it yourself.
