The neo-con Wall Street group was a term that the late Murray Rothbard used to describe one of the two elite groups that dictated – and still dictates – the policies and major actions of the U.S. government. Composed of an alliance of neo-conservatives from think tanks, academia, government, Wall Street elite, and the media, its philosophy was, and still is, espoused by the Wall Street Journal editorial page, among others.
A marriage of money and a social democrat version of a free market philosophy (more akin to fascism), these armchair authoritarians claim to know what is good for us, and, whether or not we like it, they are going to give it to us. Even if they have to lie to get their way. (To get a better idea of how Murray really had their number, read The Irrepressible Rothbard, a compendium of Murray's articles from the Rothbard-Rockwell Report, for brilliant insights into how this group operates.)
But sometimes the best lies of the neo-cons boomerang or fizzle. Based upon data available from the New York Stock Exchange, one can infer that some major stock market players expected a repeat of the 1991 war-mania fueled bull market in stocks instead of the generally punk market that they have experienced. In effect, they have been served up a half-baked lie-laden soufflé by their DC buddies – Dick Cheney, Donald Rumsfeld, Paul Wolfowitz, Richard Perle, William Kristol, Michael Ledeen, and the rest of this Axis of Deceit. Which makes you wonder why Wall Street financial types would want to stay friends with the Axis of Deceit crowd.
Psst!! – War is Good for the Stock Market !!
This nonsense of war being good for the stock market was being peddled by the Axis of Deceit from the time George Bush began seeking UN approval for a war on Iraq last fall. Using the example of the first Gulf War in 1990–91, when the market rose from the late fall of 1990 throughout 1991, neo-con pundits predicted a similar big runup in stock prices, at least until mid-year. The line was as follows: 1) we are paying for our military already; 2) moving them to the Middle East and having them fight will not cost much more, especially with the U.S. "shock and awe" formula, which would lead to a quick Iraqi surrender; 3) thus, the war will not cost much and will not lead to big deficits, higher interest rates, or rising prices; 4) worries over the war, and possible terrorist actions here, are hurting consumer expenditures and preventing investors from buying stocks; 5) once the war starts, and the U.S. is seen to be winning handily, consumer worries will evaporate and investors will flock to stocks, driving up prices 15%; and, by extension, 6) the long-awaited economic recovery will take place, providing a further basis for higher equity prices.
Well, the comparison of today's economic and market conditions with those of 12 years ago just does not fit. First of all, the U.S. economy – having entered into a recession in July 1990, was about to hit bottom in March 1991 and begin an upturn. The savings and loan (S&L) debacle was being worked through, with the clumsy federal bailouts of shaky S&L's along with clumsy – but actually occurring – federal auctions of foreclosed commercial and residential properties.
In addition, the communist world was in tatters, giving rise to hopes that the U.S. defense budget could eventually be cut after we kicked Iraq out of Kuwait. Resources would be released from wasteful and unproductive government projects to productive private sector investments and private consumption. And just as important, George Bush I and his minions managed to sucker foreign governments into paying for most of the costs the U.S. incurred in the Gulf War.
No wonder that the stock market rose in 1991. Using the newly revised New York Stock Exchange Composite Index (NYSE-CI, December 31, 2002 = 5000) as a barometer of the stock market, stocks fell from a level of 1908.45 on December 31, 1990 to 1807.79 on January 9, 1991. Bush I began the bombing of Iraq on the evening of January 16, 1991, with the NYSE-CI at 1829.26. This index climbed to 2175.44 on March 5, 1991 (near the end of the war), an increase of nearly 14% from the preceding December and a rise of 20.3% from the recent low on January 9, 1991. By the end of 1991, the market had closed at 2426.04, an increase of 27.1% for the year and, for those fortunate enough to get in on January 16 before the war started, a rise of 32.6%, before commissions.
Conning the Street
The Axis of Deceit tried mightily to con investors and their Wall Street buddies that the current war was going to spur the stock market just like it did in 1991. Appearing on television and in the print and on the Internet, they constantly tried to drive home the point about how much money investors made after the start of the Gulf War in 1991.
To the credit of many brokers and their Wall Street employers, they just did not buy this pack of lies, and they were not going to try to sell these lies to their customers. They knew that the U.S. economy was in poor shape, with the recession having started in March 2001, more than two years ago. And they knew that the official arbiter of recession dates, the National Bureau of Economic Research, has not yet stated if or when the economy has reached a trough, or bottom.
Unlike the recession of 1990–91, the Federal Reserve has cut interest rates sharply, hurting savers and bailing out firms that might have gone bankrupt. This subsidy to borrowers has kept consumption from falling but has forestalled bankruptcies and delayed the restructuring and redeployment, where possible, of mal-investments made during the credit-generated boom of the late 1990’s. It has prevented business profits from increasing and business investment from recovering. Add the war to this, and you have a recipe for continued recession or, at best, economic stagnation.
But some of the Wall Street financial crowd bought into the hot air being put out by the Axis of Deceit. And many investors, possibly hoping to make up for disastrous losses during the last three years, were also taken in by this line.
Like any other business that is affected by political decisions made in Washington, the investment community keeps its ear to the ground and undoubtedly has sources in the DC area who keep it posted on major government actions, such as the start of a war, that can have a major impact on the securities markets, their customers, and their solvency and profits. The neo-con warmongers nominally outside the Bush Administration probably played such a role here.
Getting a Bum Tip ?
Lots of stock trading takes place on the basis of rumors and tips, some good, some bad, and some half-baked like the Axis of Deceit soufflé served up to Wall Street.
Whether based on rumor or fact, trading on the NYSE flows through its member firms to the floor of the NYSE, where trades are executed through specialists, who are required to make the market in specific stocks and who are subject to specific rules and regulations set forth by the NYSE. The NYSE publishes data on its member firms' trading – purchases and sales, including short sales – two weeks after the end of a specific week's trading. Thus, on Friday evening, April 11, after the end of trading, the NYSE will publish the statistics on its members trading for the week ending March 28. This is presumably done to protect members – especially specialists, who make the market in specific stocks on the floor of the NYSE – from being caught in a buying or selling squeeze that could bankrupt them.
Short selling – in which someone borrows stock and sells it on the hope that it will fall in price so that the short seller can repurchase it, repay the loan of stock, and make a profit – is often done by specialists during times when many buyers suddenly come into the market. For instance, instead of a $20 stock rising 10 points to $30 per share because of a massive influx of buy orders, the specialist, judging that buyers might be in a temporary euphoric mood, would sell short enough shares at a price of $24–25 in order to meet the high short-term demand. If prices fell later during the day, he would repurchase the stock and repay the stock to the firm from which they borrowed it (this latter action is known as covering a short sale). The reverse can also occur, where a huge amount of selling goes on, and this is what happened the week before the war started. In either case, the goal for the specialist is to make the market and also smooth out price changes.
In the case of our current war on Iraq, things were not going too well before the war started. During the week of March 10–14, investors were very nervous. It looked like the French might be successful in preventing the U.S. from starting a war on Iraq, at least with UN backing. A significant number of those investors who purchased stocks previously, on hopes that they would rise once the war started and a quick U.S. victory was apparent, may have sold during that week, thinking that the French had once again delayed a U.S.-led attack. At the same time, NYSE specialists were net purchasers of over 575 million shares of stock that week – an incredibly large net purchase (about 50 times normal weekly net purchases, when they are positive!), much if not all of which was used to cover previous short sales.
But for the specialists to have initially sold so much stock short and then for them to repurchase that extremely large amount of stock on a net basis, they had to have been privy to information or strong rumors that Bush II would start the war shortly after the final UN Security Council meeting on March 17, and that the "shock and awe" campaign would in fact yield a quick Iraqi surrender, said surrender then precipitating a very large stock price runup. (In fact, Bush went on the air that evening, saying the U.S. and Britain would essentially go it alone in a war on Iraq.)
Elsewise, during a week that started out with heavy selling and price declines (March 10, 11, 12), why would specialists not want to wait for further sharp price declines, thus making more money on their short sales? Simply put, they did not want to take that risk that the war would not start. So they covered a large part of their short sales, relying on the strong rumors, or possible outright tips, from their neo-con warmonger friends in DC that the war would start the following week and that a "shock and awe" campaign would yield a quick Iraqi surrender.
Price movements during that week back up this explanation: from the closing on Friday, March 7, at 4645.10, the NYSE-CI fell to a closing of 4486.70 by the following Wednesday, March 12. On the next day, probably in response to heavy short covering purchases by specialists, the NYSE-CI rose almost 3.1% to 4625.21. On Friday, stocks on the NYSE rose again, with the Composite Index closing at 4641.63, probably with lots of further short-covering. For that week as a whole, the index fell slightly.
After the war started on March 20, stocks shot up, closing at 4970.94 on March 21, during the peak of the "shock and awe" attack that was supposed to bring a very quick surrender. If one had purchased stock at the recent low point on March 12 and sold on Friday March 21 at the peak of war mania, he would have made about 10.8%, excluding commissions. While this was not bad, it was much weaker than the 20.3% one could have made in Gulf War I.
For those less fortunate souls who swallowed the hook, line, and sinker along with the Axis of Deceit bait, their returns are mediocre at best, and lousy at worst! If they bought stocks on December 31, 2002, the NYSE-CI fell from 5000 to 4870.57 on April 9, the end of the third week of the war and a day on which the U.S. armed forces took control of Baghdad, for a loss of 2.6% excluding commissions. If they had been astute, buying on March 12 and selling on April 9, they would have made 8.6% before commissions.
And for those hoping that stock returns will somehow improve if they hold on a bit longer, well, lots of luck! Investors are once again turning their attention to the sad state of the economy and corporate earnings and are turning attention away from the Iraqi war. And if the postwar Iraqi occupation lasts longer and costs more than expected $75 billion, or the Axis of Deceit gets Bush II to attack Syria or Iran, or al Qaeda launches successful retaliatory strikes on U.S. soil, investors will face some really tough times.
The bottom line is that the Wall Street financial crowd ought to learn that the Axis of Deceit has their own agenda, and it's not helping Wall Street types make money!!!!! War hurts the economy and cannot help it. It destroys precious human life, destroys valuable property, and expends resources to do this. The sooner the Wall Street crowd terminates their alliance with the Axis of Deceit, the more likely they and their clients are to make a profit on their investments and to live in peace to enjoy those profits.
April 11, 2003
Jim Grichar (aka Exx-Gman) [send him mail], formerly an economist with the federal government, writes to “un-spin” the federal government’s attempt to con the public.
