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By Gary D. Halbert
August 12, 2003



1.  The Economy Shows More Signs Of Strength.

2.  Stocks Hold Steady, Bonds Fall Out Of Bed.

3.  Suddenly, There’s Al Gore – Is He Running?

4.  A Gore Presidency Is A Problem For Hillary.

5.  Gore Moves Left, Thinking He Can Win.


The US economy expanded at an annual rate of 2.4% in the 2Q according to the government’s latest report on GDP.  This was well above analyst’s expectations for a rise of only 1.8%.  The economic recovery is gaining momentum.  But you wouldn’t know it for all the media bias to the contrary. 

As the economy is heating up, so is the political scene.  Two weeks ago, I predicted that Hillary Clinton and Al Gore might rethink their decisions not to run for president in 2004, if Bush’s approval ratings continue to slide.  Sure enough, Al Gore came out of hiding last week, and Hillary made some interesting remarks.

And are you ready for two months of non-stop coverage of the California gubernatorial recall?  Media, could you give us a break…please!?

GDP Beat Expectations 

As noted above, GDP rose by 2.4% (annual rate) in the 2Q, well above advance estimates.  Factory orders and orders for durable goods both rose in the latest reports.  Retail sales were also strong.  The latest good economic news came as no surprise to the editors at The Bank Credit Analyst (BCA).  They offer the following:

“There is enough policy stimulus in the system to guarantee an acceleration in economic growth during the next several quarters. Most importantly, consumer spending power will benefit from tax cuts and from the mortgage refinancing deals still in the pipeline. Meanwhile, business spending on inventories should increase, the drag from the trade deficit should diminish and government spending should remain firm. Second-half growth could easily be in the 3½% to 4% range.”

As I have discussed in recent E-Letters, BCA expects the economic recovery to continue at least through the end of 2004.  In the latest monthly Wall Street Journal Online survey, economists expect economic growth of 3.6% on average in the 3Q, consistent with BCA’s forecast.    

There was one piece of good news/bad news regarding the economy.  The Labor Department reported that worker productivity increased 5.7% in the 2Q.  While this is good news for corporate executives, it does not bode well for the unemployment rate.  While the unemployment rate eased slightly to 6.2% in July, it may be slow to fall further until the economy hits a growth rate of 3½-4%.

The Conference Board reported that consumer confidence fell sharply in July, even though analysts’ expectations called for an increase in confidence.  However, the widely followed University of Michigan Consumer Sentiment Index showed a slight increase for July.  So it remains to be seen if the Conference Board revises its report upward.

On balance, economic reports over the last few weeks have been quite positive, and the recovery should continue to improve during the rest of the year.  But don’t expect to hear it in the mainstream media.   The media continues to ignore the good news and focuses instead on the one area that still needs improvement - jobs.  This is a clear indication that the major media outlets are trying to make Bush vulnerable on the economy.  And it’s working.  In the latest Zogby poll reported today on CNN, Americans rated the economy as their highest concern – 26%.  Unemployment was next at 17%.  

As a reminder, if you want to follow the liberal bias in the media, visit Media Research Center at http://www.mediaresearch.orgTheir daily “CyberAlerts” are great.

Stocks Hold Steady, Bonds Fall Out Of Bed

The stock markets have held fairly steady over the last month, consolidating gains made in March-June.  Actually, the fact that stocks have held steady during the latest bond market debacle is quite impressive, and is another indicator that equity prices have further to go on the upside.  Yet as I have cautioned in recent weeks, the ride to higher stock prices (after a 25% rise already) will almost certainly be a bumpy one.

My advice remains the same.  If you bought stocks and/or mutual funds when I recommended it just before the war in Iraq, I would now look to take profits and put that money under the direction of a professional market timer.

The implosion in the bond market seems to have run its course, for the time being.  The yield on the 10-year Treasury note spiked from 3.1% to 4.5% in just a month.  This is occurring in part because the economy is improving, in part because the Fed did not move in to stop it (as was widely expected) and in part because rates overshot on the downside.  Investors who came late to the bond party have been hammered.

I have been warning for several months that the Treasury bond market was overshooting, and that investors should reduce exposure, either by moving to corporate or high-yield bonds, or just taking profits.  Hopefully, you did that. 

Our recommended bond market timer side-stepped the carnage in bonds recently and is still nicely profitable for the year.  I look for bonds to move in a fairly broad trading range for the balance of this year.  If so, a market timing strategy should do well.

Suddenly, There’s Al Gore Again

Just two weeks ago in the July 29 issue of this E-Letter, I noted the following.  “…with Bush’s approval ratings down significantly, and with the current group of Dem wannabes doing so poorly, there is increasing speculation that Hillary may jump in the race if Bush’s numbers continue to fall. There are even rumors that Al Gore may be reconsidering his decision not to run, especially if Bush’s numbers were to fall significantly more.”

Last Thursday, none other than Al Gore came out of the woodwork to make a major policy speech after being absent from the political scene for the last 2½ years.   Gore spoke to apprx. 500 party faithfuls who gathered at New York University in Manhattan.

In his typical lecturing style, Gore attacked the Bush administration on numerous fronts.  He began with Iraq and stated that he was opposed to the war and would not have used force to remove Saddam Hussein.  He recycled the “blood-for-oil” claim, the WMD issue, the Niger/uranium issue, the post-war mismanagement issue, and on and on.  He blasted Bush over tax cuts and other domestic issues.  He basically concluded that the Bush administration is full of people who are not only dishonest but also dangerous.

The question on everyone’s mind is whether this speech was the opening salvo for a run against Bush in 2004, or whether Gore is simply trying to help the current group of Dem hopefuls by saying things they aren’t comfortable saying themselves.  At this point, most political observers believe it’s the latter.  Even Gore himself said that he intends to endorse one of the current hopefuls.  But is that the real story?

A Problem For Hillary

If Gore were to enter the race, he would trounce any of the current candidates, including Dean, based on the latest polls.  And as we all remember, he actually beat Bush in the popular vote in 2000.  So, if Gore decides to run, he would actually have a chance to win, unlike the current group of wannabes (although I’m not sure how good his chances are if he continues the far-left rhetoric he used last week).

In recent weeks, I have raised the question of whether the Clintons and DNC chairman Terry McAuliffe have written-off the 2004 election, with plans to run Hillary in 2008.  They may be content with the current group of wannabes, none of whom could beat Bush today, thus assuring that Hillary would not have to unseat a Democrat incumbent in ’08.  Obviously, I don’t know if this is true, but a lot of other people think it’s a possibility.

It was reported that one of those urging Gore to run is Mario Cuomo, the former governor of New York.  There is reportedly no love lost between the Cuomos (Mario and son Andrew) and the Clintons.  It may well be that Cuomo and the others urging Gore to run may be doing so precisely in an effort to block Hillary in ’08.

If Gore were to win in ’04 he would certainly run again in ’08, so it would be 2012 before Hillary would get another chance.  At that point, Hillary would be 65 years old and 12 years out of the limelight.

Another Take On It

There is another slightly different take on the re-emergence of Al Gore. It’s looking increasingly like the Democratic National Committee (DNC) is fractured, much like the party itself.   As noted above, there are those in the DNC, including chairman Terri McAuliffe, who will actively promote a Howard Dean candidacy.  However, there are other elements of the DNC that are very much opposed to it, like the Democratic Leadership Council (DLC).

Many believe that the DLC approached Gore to get in the race to save the party.  Now we have to assume that Al didn’t say yes, but he didn’t say no either.  Thus, the speech.  And there begins the problem for the DLC.  Their most likely savior’s coming out address sounded one ultra-left wacko note after the next.  That speech only seemed to bolster a Dean candidacy, not stifle it.  Why?  Perhaps because he thinks he can win with it!

Gore ran on a populist platform in 2000 and only lost because of the ultra-left Ralph Nader.  Now that Dean has struck a cord on similar issues, (and Bush is looking more and more mortal by the day), Al can co-opt them as he steps into the race.  Gore would take Dean’s ideas, eliminate all the wannabes and it becomes a real horse race.

At this point, the DLC has to be horrified!  They had hoped Gore would come out as a centrist with a real shot at saving the party and perhaps winning in 2004.  But the latest version of Al Gore was bitterly anti-Bush, anti-war, anti-security, pro-bigger government, and higher taxes.  (By the way, if you repeal Bush’s tax cuts, that’s a tax increase.)

I don’t believe Gore can beat Bush on that platform.  But if he wins the party nomination, he can always swing toward the center if the polls show that’s where the majority of voters are.  I have no doubt Gore will run if he thinks he can win.  Nothing would make him happier than to beat Bush and block Hillary from a run in 2008.  Look for Al to “let it rip” soon.

Then the question is, will Hillary jump in if Gore does?  My oh my, it’s going to be interesting!  On thing is for sure: neither Al nor Hillary will get in the race unless they are pretty darned sure they can win.  I think Bush’s approval ratings have to fall further for that to happen.

Meanwhile, we are all treated daily to the California recall fiasco.  One wonders if the Democratic leadership will force Gray Davis to resign so they can throw their support behind Lieutenant Governor Cruz Bustamante.  Stranger things have happened.

Best regards,

Gary D. Halbert


Who’s to blame for Howard Dean?

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Forecasts & Trends E-Letter is published by Halbert Wealth Management, Inc. Gary D. Halbert is the president and CEO of Halbert Wealth Management, Inc. and is the editor of this publication. Information contained herein is taken from sources believed to be reliable but cannot be guaranteed as to its accuracy. Opinions and recommendations herein generally reflect the judgement of Gary D. Halbert (or another named author) and may change at any time without written notice. Market opinions contained herein are intended as general observations and are not intended as specific investment advice. Readers are urged to check with their investment counselors before making any investment decisions. This electronic newsletter does not constitute an offer of sale of any securities. Gary D. Halbert, Halbert Wealth Management, Inc., and its affiliated companies, its officers, directors and/or employees may or may not have investments in markets or programs mentioned herein. Past results are not necessarily indicative of future results. Reprinting for family or friends is allowed with proper credit. However, republishing (written or electronically) in its entirety or through the use of extensive quotes is prohibited without prior written consent.

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