Waiting for Something to Happen
Jude Wanniski
April 18, 2002


In our 24 years watching Wall Street and the world political economy, every now and then there is nothing to see, nothing happening worth commenting upon. That is where we are now, in a state of suspended animation. Congress is in session, but there is absolutely nothing coming down the pike that will make much of a difference to the broad economy or to the markets, one way or another. When I call old friends on the Hill to talk about what they are doing, they acknowledge it is all about nickels and dimes in the appropriation bills, and controversies over energy and trade that are big enough to make headlines, but not enough to interest us here. There is practically no discussion in Washington about the national economy because of the widespread agreement that the recovery is underway and will continue, even if at a glacial pace. Fed Chairman Alan Greenspan only added to the snooze when he testified yesterday, repeating month-old news that economists see recovery, but corporate chieftains are less certain. The Wall Street experts we see on television or hear on Bloomberg speak confidently about where the market is heading, whether they are bulls or bears, but we rarely hear one that makes any sense in our model.

The deflation drag continues, eating away at nominal prices and earnings, but Polyconomics is still alone in seeing those microscopic termites chewing away. And with gold above $300, taking some of the deflationary pressure off the financial system, it is even less likely that anyone in a position to do anything will take the remaining deflation seriously. Greenspan will be back in a month or two with unemployment up a notch or two and the Dow Jones Industrials down a notch or two, and there will be more treading water. Market crashes get everyone`s attention, but when we have a bear market led by a sleepy bear, the people who are paid to fix the national economy when it breaks sit around on their hands, like the Maytag repair man. The bond market, which was the place to take a nap when I was a young Washington journalist in the 1960s, keeps us awake these days as yields rise or fall with signs the economy is recovering, or not. We last added the 30-year bond to our model Supply-Side Portfolio at 5.79%, and with it now at 5.72% after dipping to 4.69%, it looks like time to add again. There is no inflation, equities are inching lower, and you do not have to have a capital gain to make money on a bond that is paying real returns at this level. The only other excitement around is in Tokyo, which was first into the deflation and is now almost out of it. We even hear rumblings of supply-side tax cuts in the works.

Secretary of State Colin Powell is back from the Middle East and the commentators say he failed because he came home empty. But somehow things seem much quieter than when his trip began. What I sense is a genuine setback for the Likud far right, led by former Prime Minister Bebe Netanyahu, which does not want a Palestine at all. Powell may have had a great success in scattering stardust over Ariel Sharon and Yasir Arafat, leaving understandings in his wake that were not written down. If Hamas and Hezbollah can hibernate for a while, long enough for talks to resume by agents of Sharon and Arafat, the fresh memories of the violence of recent months may be enough to propel both sides toward an agreement that can hold.