MONDAY, NOVEMBER 5, 2007

UP AND DOWN WALL STREET  

By ALAN ABELSON


Pillow Talk

ALICE ROOSEVELT LONGWORTH WAS KIND of like Hillary Clinton, only more so. Teddy Roosevelt's daughter, she was married to a congressman and while still apparently bathed in marital bliss gave birth to a daughter fathered by a senator. For most of her 96 years, equipped with a wicked tongue and a wit to match, she raised holy hell, was a certified celebrity long before celebrities were mass-produced, was the original Washington hostess with the mostess, waded into politics as if she were born to it (maybe because she was) and would have run for president, except women weren't allowed to vote, much less do something as unladylike as to vie for the presidency.

What brings her to mind is, first, a new biography entitled Alice. An incorrigible socialite with a flourishing salon where the famous and powerful met the fatuous and rich (none of those qualities are necessarily independent of the others, especially in Washington), she carted around her very own needlepoint pillow (as one reviewer of the book reminds us) inscribed with these words: "If you can't say something good about someone, sit right here by me."

That struck us as an eerily apt description of the tenor of last week's so-called debate between the aspirants to become the Democratic standard-bearer (do Democrats, or Republicans, for that matter, still have standards?) in '08. The boys, led by Barack Obama and John Edwards, ganged up on Hillary for being one of the boys. That she can bob, duck and weave with the best of them shouldn't have taken Barack or John or any of the other worthies by surprise -- after all, she learned from a master artful dodger.

And what's so terrible about her changing her mind, from one sentence to the next? Isn't that, according to sexist lore, supposedly a woman's prerogative? As for an undeniable tendency to fib a lot, that's manifestly one of the prerequisites for the job, as the present tenant in the While House routinely demonstrates.

The subject that occasioned a tremendous expenditure of time and acrimony by the wannabe presidents in last week's free-for-all was who deserved to get a driver's license in New York state. We realize that it's of monumental importance, dwarfing such trivial concerns as the bloody war in Iraq, that 40 million or so Americans lack health insurance, the massive woes in the credit markets, housing in the dumps and foreclosures spiraling remorselessly upward, to say nothing of the possibility that even if you get a driver's license, with oil closing in on $100 a barrel, you won't be able to afford to drive, anyway.

It's both ironic and typical that the Democrats, who traditionally have fed sumptuously on the bread-and-butter stuff, instead of falling all over each other to exploit the golden opportunity offered by a reeling economy and a citizenry increasingly uneasy about its jobs and the price of life's necessities headed for the moon, are squabbling over a tissue of an issue.

And wasn't the rallying cry during Hillary's husband's successful run for the oval office "It's the economy, stupid!"? Why do we have the feeling that "It's the driver's license, stupid!" doesn't have quite the same pizzazz?

Just to grasp what donkeys the Dems really are, consider: Even the stock market, which has been giving a pretty good if sporadic imitation of being in Lotus Land, sobered up long enough last week to look into the abyss and shudder convulsively.

What the stock market saw in that horrified glance caused it to shed some 360 points on Thursday and unhinge bourses around the planet, before it regained a measure of still shaky composure in the final session. The prospect that threw such a fright into the poor thing was neatly summed up in a recent commentary by those sage seers, David and Jay Levy, son and dad, respectively, authors of the Levy Forecast (surely, you didn't expect it to be named the Smith or Jones Forecast).

They briefly describe the kind of era now coming to an end in which investors and lenders, wielding unimaginable leverage and with a fine disdain for risk, madly chased returns in every chancy vehicle known to investing man and a few particularly egregious ones invented specifically to take advantage of the superheated financial climate. Such high old times inevitably end in tears, they caution, with the economic landscape badly littered with the detritus of a great speculative boom gone bust.

In the next recession, which the Levys see beckoning, corporate earnings will take a tumble, no surprise, but the real damage will take the form of "financial hemorrhaging, illiquidity, insolvency, severe credit tightening and massive write-offs," with, also no surprise, financial institutions suffering the optimum pain.

We don't want you to get the impression there's smoke coming out of their ears. Actually, they're quite an amiable pair, anything but alarmist, with even temperaments to match their clear-sightedness. But they've seen a lot and know a lot, and not many latter-day Nostradamuses can say the same.

SUPPOSE THE LEVYS AND THE REST of us dour-visioned types calling for a recession (and we're still very much in the minority, we're heartened to observe) are right? How will the powers-that-be respond? Well, of course, it'll vary some from power-that-be to power-that-be.

Mr. Bernanke, to judge by his recent actions, will make certain the printing presses at the Fed are well-oiled and can easily be stepped up to three shifts. The $41 billion he tossed willy-nilly into the financial system last week -- the biggest infusion since early in September 2001, when the economy was dragging -- was just a modest sample of what to expect. And he's sure to keep kicking interest rates lower -- by how much depends on the amount of help the stock market needs at any given time, which seems to be a critical determinant.

Over at Treasury, Mr. Paulson will be busily readying another humongous care package for those ailing old chums of his, the banks and brokers, some of whom could be in danger of, heaven forbid, going under for the third time, pulled down by the weight of their own greed and folly. Busy as he'll be, we've no doubt, but a resourceful fellow, he'll squeeze in a bit of China-bashing as well.

Mr. Bush will probably be in attendance at one of those eminently forgettable conferences, hobnobbing with other world leaders (just don't ask where they're leading the world), in some remote foreign hamlet known for its balmy climate and great bicycle paths. Trapped by the pesky press when out for a breath of fresh air, he'll assure one and all the economy has never been better and -- after consulting his watch -- add that it's likely to recover any minute now.

Meanwhile, of course, Washington's fudge factory will be humming overtime. Happily, some recent output of that vaunted facility gives us a proper taste of what to anticipate. In both instances, some truly professional handiwork turns what is essentially flavorless fare into something much more juicy.

The first marvelous artifact was the report on third-quarter GDP. According to the official tally, the economy grew 3.9%. That rated as a substantial upside surprise, since the going Street guess was 3.4%-3.5%. Delighted as we were to see the nation's business bustling along at a much swifter clip than we had expected, a closer look at the numbers persuaded us that something didn't compute.

As a matter of fact, more than one thing about the figures bugged us. But what we found especially bothersome was that, with oil and food prices soaring and the dollar still on the skids, inflation as measured for the GDP calculation edged up a mere 0.8%. In contrast, it was 2.6% in the second quarter. Just amazing, isn't it, how things can get so much cheaper in just a few months without your even noticing it?

The point, of course, is that save for that miraculous decline in the GDP "deflator," in the third quarter, growth in the economy would have barely topped 3%. And if the number were anywhere near what inflation is actually running at, GDP might have come in at less than 2%. From the looks of things, it's going to be quite a challenge for those accommodating government number crunchers to put much of a gloss on this quarter's drab data.

The fudgers left their messy fingerprints all over another set of figures, with much more stock-market impact: October's employment report. Supposedly 166,000 jobs were added to payrolls last month, way above what the crystal-ball gazers in the Street predicted. What stirred our suspicions -- or shall we say our curiosity?, which, if nothing else, is more polite -- was that contributing to the overall gain were 2,100 added jobs in -- Are you ready for this? -- real estate!

And we couldn't help noticing that no fewer than 103,000 of the presumed 166,000 additions came by virtue of the birth/death adjustment. Which means, pure and simple, they were the product of somebody's computer doodling; they were, in other words, made-out-of-the-whole-cloth, phantom, phony -- we're sure you get our subtle drift. In truth, something over 80% of this waning year's reported new jobs are similarly mythical constructs.

As Merrill Lynch's estimable David Rosenberg comments, "One reason why consumer confidence levels are so low even in the face of Fed easings and a stock market that shows impressive resilience is that the nonfarm payroll data are overstating labor market strength." He notes, moreover, that the weakness in the household survey of employment is much more evident than in the payroll count and is running more than 80% below last year's average monthly gain.

Fudge, anyone?


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