WASHINGTON -- Last May, when oil was $74 a barrel, gasoline was $3 a gallon and up, and the Dow had just plunged 214 points, I said the Dow would hit 12,000 before the end of the year.
"Look for the total economy to grow to $13 trillion by next year and for the Dow to surpass 12,000 by year's end," I reported, adding an admonition from legendary financier J. P. Morgan that "anyone who bets against the American economy will lose."
That no doubt sounded wildly pollyanish to some people at the time, and I got a lot of ribbing from colleagues and friends, but it was based on the fundamentals I saw in the United States and global economy at the time.
The stock markets were mindlessly in the grip of fears at a time when, to paraphrase FDR, the only thing we had to fear was fear itself.
The Fed was raising interest rates in a myopic obsession with inflation whose core rate, minus energy, remained relatively tame. But the new Fed chairman, Ben Bernanke, was sending signals the Fed would pause, which it did, and there were other signs, too, of continued economic expansion.
The Republican-run Congress was extending the 2003 capital gains and dividend tax cuts that President Bush quickly signed. Oil was showing signs of declining and, I believed at the time, gas prices would fall too. All this promised to further fuel the financial markets once Wall Street got over its bearish jitters, which it eventually did when it was clear that the sky was not falling.
At the same time, I saw a resurgent long term global economy boosting U.S. exports, continued growth in new jobs, higher corporate profits and renewed interest from investors looking to climb aboard while there was still time to grab some inexpensive stocks. The economy was growing by better than 4 percent and I saw no events on the horizon that were going to short-circuit that trend.
So here we are (as of last Thursday) approaching November and the 2006 congressional elections with the Dow surpassing 12,000 and the rest of the broader markets -- as well as the global markets -- rising along with it.
The questions that need to be answered now are twofold: Will the bull market and rising stock values influence the voters' anti-Republican mood over the next two weeks -- enough to blunt expected Democratic gains -- and will this economy keep growing as it has under Bush's pro-growth tax cut policies?