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November 13, 2006

Dumping Bad News Into the Next Two Years

-- by Dave Johnson

I co-authored a post at Huffington Post with Michelle Kraus: The Blog | Michelle Kraus: Plan B: On Taking Down the Quarter... Democrats Take Notice, looking at the possibility that the Bush administration will start dumping all the saved-up bad news into the next two year, hoping Democrats get the blame. Corporations, knowing they're going to have a bad quarter anyway, often dump all the bad news they can find into that quarter...

Democrats Take Notice

Think long and hard about Bush and the announcements made the day of the Democratic victory Wednesday of last week. Rumsfeld's firing had the "take no prisoners" demeanor of a Titan of industry cutting the fat from his earnings loss. Could this action presage a continued corporate approach to handling the Democratic takeover of the House and Senate?

CEOs, knowing they are going to report a bad quarter, often throw all the "bad news" they can into that quarter. They write down all the losses they can dig up, and instead of reporting a bad quarter they report a really bad quarter and take it all in the shorts at the same time. This clears the books, and they can start fresh the next quarter to the applause of Wall Street.

Is this an analogy for what Bush is planning to do to the Democrats? There is a lot of "bad news" that has been saving up for the last six years ... massive deficits, a huge trade deficit year-after-year with its resulting highest-in-history current accounts imbalance, the housing bubble, the deteriorating Iraq war -- all individually damaging, but grouped together enough to drag the whole country down. And now the administration has the Democrats in both Houses to blame for the consequences of the (lack of) policies of this lame duck President and his band of buffoons.

Earlier this year Bush suspended oil purchases for the Strategic Petroleum Reserve, which brought down the price of a barrel of oil for the elections. Now the price will begin to escalate again and the price of gas will top $3.00 again soon. The Chinese and other central banks are diversifying away from the dollar and the dollar is falling. The nation's savings rate has been negative for five quarters and the GDP last quarter was an anemic 1.6%. The stage is set.

Rumsfeld's firing and the Baker commission only address Iraq and "the market's" perception of that business unit. Undoubtedly, Iraq was the straw that broke this election and in business terms -- the market's rejection of the company's stock price. It is when one pulls back the curtain and the economic framework of the country is revealed in all its global fragility that the dirty little secrets of this administration will spin out of control. As we said, there is a LOT of bad news saved up for Bush to dump on the Democrats - and the country. The Democrats will need to have a coherent long term plan and powerful leadership to withstand these assaults.


Posted by Dave Johnson at November 13, 2006 11:41 AM

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