

Life After GE

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Funny what people do after they're sprung from harness.

If they're still in good physical condition, they might take up some popular sport. Usually tennis or golf, but the more venturesome seek a livelier challenge. Like boxing. As witness last week's fistic encounter between the Knee-cap Kutie, Tonya Harding, and the Tramp Steamer, Paula Jones.

Ms. Harding, in her prime a good skater but hardly a good skate, had more fights under her belt and experience told: She leveled Ms. Jones. The smart money was on Ms. Jones, since she boasted a TKO over Bill Clinton, even though he outweighed her by a ton. What the smart money failed to reckon on was that Ms. Jones would be more concerned with protecting her expensive new nose than tagging Tonya.

Obviously, most retirees, even early retirees, don't climb into the ring for kicks or in pursuit of a second vocation. (A word of advice to Ms. Harding: If you decide to turn pro and take on Mike Tyson, do remember to get your rabies shot.) But since the gold-watch set now is so much more vigorous and spry than it used to be, its members not infrequently sail forth, pensions in their pockets, in search of new challenges.

And that goes in spades for ex-CEOs. What better case in point than the most celebrated CEO of all, Jack Welch. After having single-handedly made GE the greatest company ever (we know that because Mr. Welch says so), he chose to try the literary life and virtually overnight produced a best-seller. Mr. Welch is obviously a jack-of-all-trades and, more than that, a master at getting the most jack out of all trades.

The curriculum vitae of celebrity CEO and instantly successful author has made him much in demand as speaker, television guest, lecturer and all-around sage. So it was that he was solicited for an interview by no less a journalistic enterprise (and frankly, offhand we can't think of any less a journalistic enterprise) than the Harvard Business Review. The interviewer was the publication's editor, Suzy Wetlaufer. Ms. Wetlaufer and Mr. Welch immediately warmed to each other on discovering the remarkable coincidence -- more than coincidence, it was kismet -- of both their surnames beginning with W, and the rest is hysteria.

Mr. Welch's wife, apparently, pointed out to Ms. Wetlaufer that perhaps Ms. Wetlaufer and Mr. Welch's mutual fondness might taint the objectivity of the article on Mr. Welch. A thoroughly thoughtful observation, which prompted Ms. Wetlaufer to place the interview in less engaged hands. Truth is, though, that since the Harvard Business Review's inviolate policy is to let the person being interviewed make any changes in the copy he wants to before publication, the article's objectivity per se didn't exist, so it couldn't possibly be compromised.

Some holier-than-Suzy members of the staff raised a hullabaloo and quit to uphold the sacred principle of journalistic integrity. Which completely baffles us. As we've just tried to explain, the Harvard Business Review has as much connection with journalism as a delicatessen has with the Institute for Advanced Study. Maybe they just had a bad hair day. Or maybe they thought the pricey bracelet Mr. Welch slipped onto Ms. Wetlaufer's wrist was a touch louche.

The brouhaha compelled Ms. Wetlaufer to step down as editor and take up a new role at the Review as editor -at-large. For those civilians unfamiliar with the various job descriptions peculiar to publications, we'll just say that being an editor-at-large is better than being an editor at loose ends. Mr. Welch, meanwhile, has proved there's life after GE -- and quite an interesting one.

Being an incurable romantic, we envision Ms. Wetlaufer and Mr. Welch living happily ever after, although not necessarily with each other.

True to tradition, congress has gotten a- round to passing an economic stimulus bill just as recovery rears its lovely head. This particular package is heavy with sweets to entice business to spend, notably liberalized depreciation and loss-carryforward provisions, and as a sop to the loyal opposition, extends unemployment benefits. But there's no need for alarm: That the measure will furnish any immediate fillip is doubtful; capacity is in such daunting abundance virtually everywhere that the incentives are likely to prove as effective as offering farmers inducements to buy irrigation systems right after a flood.

Of course, the depreciation breaks aren't slated to expire until the end of fiscal '04. Hence, there's every chance that any real stimulus from them will come some years out, when the economy is bubbling along and companies have worked off excess capacity and are purposefully stepping up their capital investment. In other words, the stimulus is destined -- by unintelligent design -- to kick in when it's most unneeded and least wanted.

But it doesn't take much reflection to realize that Congress and the administration -- and it doesn't matter which Congress or which administration -- have their eyes fixed on votes, not consequences.

Ironically, there is a brief, little heard these days in respectable quarters, that the economy, while it broke fast from the post-Sept. 11 despondency and has made solid headway on the road to recovery, is by no means in the clear. But, as noted, even if Washington had been inspired by such a benign consideration, it still would have formulated the wrong medicine. We're afraid there's no granting our public servants so much as a splash of absolution.

Our own view remains skeptical as to the strength and durability of the recovery. We think there's relapse coming and possibly sooner rather than later. The near unanimity that the recession is over is almost enough to guarantee it isn't.

But our doubts spring from more than an innate contrariness, not to say oneriness. What largely kept the economy from sinking completely out of sight was the doughty consumer, who continued to spend as if there were no tomorrow. And, indeed, as shrewdly pointed out by Goldman Sachs, a certain fatalism about tomorrow, occasioned by Sept. 11, contributed in some tangible way to the spending spree. As obviously did the Fed's now famous serial rate slashing, which sparked a great wave of home-mortgage refinancing and enabled Detroit to offer irresistible zero interest charges.

Nor, as we complained only last week, does the weather get enough credit for its stellar role in shoring up the failing economy. Just how much credit it merits was spelled out in a recent commentary by Morgan Stanley's admirable economist, Stephen Roach. Steve relays the info from the National Climatic Data Center (whose name alone reeks of gravitas) that the period from November 2001 through January 2002 was the warmest such stretch in the 106 years readings have been recorded.

Not only was this abnormal warmth a great boon to construction generally and home building in particular and a mighty check to energy prices, but it also skewed seasonal adjustments of everything from house sales to employment data, in the process adding more than a little varnish to the rebound.

What Mother Nature giveth, she also taketh away, as Steve notes, and the "seasonals" always even out over the course of the year. So be prepared: At some point in the months ahead those infamous seasonal adjustments will change the numbers for the worse rather than the better.

More substantively, Steve shares our profound puzzlement that with housing and autos, which normally lead the economy out of recession, already, as he puts it, "having done their heavy lifting," and with capital spending likely to remain supine, and the overextended consumer "running out of rope," whence will come the spark for a sharp and sustained upward thrust by the economy?

Don't all answer at once.

It has been six months since the attack and it's the quintessential bittersweet anniversary. Bitter, of course, because the memory of that awful day is still so green and its sheer terror so fresh. Bitter, too, because it continues to breed new causes of grief and horror. And bitter, not least, because the emblematic figure for all that went so terribly wrong that day, Osama bin Laden, is still somewhere out there, no doubt gleefully plotting more mayhem.

Sweet, obviously, because Americans, and not least among them New Yorkers, have shown true grit. Sweet especially because Americans have come together with remarkable will, coolness and grace, enshrining Sept. 11 without allowing it to stop up or misshape the quotidian currents of their lives that have made the nation, in every sense, the envy of the world.

Wall Street -- the physical locale, not the metaphor -- was where Sept. 11 happened, so the impact was immediate, all too visible and enduring. To its everlasting credit, Wall Street moved resolutely and quickly to recoup, and with unwonted speed and efficiency was back in business within a week. Any less expeditious an effort would have spelled disaster for the already staggering economy.

The stock market, after evincing huge initial shock, rallied as well, heartened by the administration's resolve and action in meeting the awesome challenges posed by the attack and its aftermath, not least in punishing the Taliban and their fundamentalist cronies.

Although the market in January ran into a wall, it has posted remarkable gains since hitting bottom on Sept 21. More specifically, since that low, the Dow is up nearly 29% and the S&P by over 20%, while Nasdaq, which, of course, had had the steepest fall by far of all the averages, has bounced some 31%.

Such a brilliant showing, not surprisingly, has done wonders for investor sentiment. In fact, not a little of the bubble mentality that was last seen in the spring of 2000 has reappeared, in much diminished but still recognizable form. Enron et al. threw cold water on the rejuvenated animal spirits, but only for a spell and, in any case, thanks heavens, has failed to dampen them completely.

In recent weeks, the steady stream of good economic news, topped off by a big jump in the purchasing managers' index and a positive employment report, has provided investors with increasing reason for confidence. Less noted but nonetheless a significant source of market fuel have been the large short positions of the vast and growing population of hedge funds. For the most part, the hedgies are not burdened with loyalty to an investment stance and when it became painfully apparent that stocks were going up instead of down, they scurried to cover.

All of which is prelude to the big question: Is this the genuine article -- a new bull market? The answer is -- are you ready for a big surprise? -- no. For one thing, as intimated, investors are betting on a muscular revival in the economy. For the reasons spelled out in the little blurb that preceded this one, we don't think that's in the cards. And any diminution of expectations for the economy is sure to stir fears of another bad market spill.

Moreover, the involuntary buying that has provided such a nice lift to the market for most of the past six months isn't due for a repeat, if only because, as noted, those feckless hedge fund managers have been busily shrinking their short positions.

Finally, but most definitely not least, neither sentiment nor valuation suggests that the bear market is done and gone with, much less that a new bull market is in the making. Despite all the damage wrought to investor wealth, there remain, as we said, more than mere vestiges of bubble mania. Could be we're trapped in a time warp and it's no longer necessary for the speculative impulse to be expunged from the minds and hearts of investors, even after a bull market that was the wildest and most freighted with excess on record. But we just don't buy that.

Nor do we believe that Enronitis will soon pass. Rather, we suspect the baleful effects on corporate behavior and earnings haven't really begun to be felt. Far from doing a quick fade, the scandalous legacy of the 'Nineties is apt to be a continuing and depressing presence.

And, when all is said and done, stocks simply aren't cheap. At least by any measure of valuation except the discredited confections that were all the rage during the late bubble days. Pro forma, anyone?

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