Will stocks continue to climb in 2014?
This is a rush transcript from "Journal Editorial Report," January 4, 2014. This copy may not be in its final form and may be updated.
PAUL GIGOT, HOST: This week on the "Journal Editorial Report," from Washington to Wall Street and around the world, our look ahead to 2014.
After ObamaCare's rocky rollout, can the president get back on track and push forward with his populist agenda?
Will 2014 be another big year for stocks, or are there signs of a slowdown?
And will the coming year bring historic peace accords or growing global disorder?
Welcome to the "Journal Editorial Report." I'm Paul Gigot.
And this week, we're looking ahead to 2014 and the challenges facing the Obama administration at home and abroad. We start on the home front, where the president, no doubt, is happy to put 2013 behind him. So can the White House move past their ObamaCare woes, pump up those sagging poll numbers and push forward with what's shaping up to be a populist agenda?
Let's ask Wall Street Journal columnist and deputy editor, Dan Henninger; columnist, Mary Anastasia O'Grady; and assistant editorial page editor, James freeman.
So, Dan, the president has got a comeback strategy I suspect.
DAN HENNINGER, COLUMNIST & DEPUTY EDITOR: Yeah.
GIGOT: What is it and what are the prospects?
HENNINGER: I think it's difficult for the president himself to come back, Paul. I think the damage that was done to his credibility with ObamaCare is pretty significant, you know, saying you can keep your doctor or health care plan, which wasn't true. When the public withdraws its belief in the president, he has a problem.
Nonetheless, they've got a big election to contest in November of 2014.
GIGOT: That's for sure.
HENNINGER: I think a lot of the effort is going to go into disadvantaging the Republicans to try to suppress Republican turnout, make the Republicans look like something you don't want to vote for.
GIGOT: Financing Tea Party challengers --
HENNINGER: They don't want the Republicans taking control of the Senate. So I think that's what we're going to see across the legislative agenda in Washington.
GIGOT: Mary, there's also an emerging, on the left, economic populism, which is of course fascinating, since they've been in charge for over five years. They're now saying we need this new aggressiveness on economics, redistribution. They're going to promote a minimum-wage, referenda, all around the country if they can do it. Push Congress, talk about extending unemployment benefits, unemployment benefits, a variety of these arguments aimed at saying Republicans are for the rich and we're for the little guy.
MARY ANASTASIA O'GRADY: Right. I don't think it's really about getting any of that done. It's really more about taking advantage of the circumstances to demagogue the other side. I think what we're seeing here with this president is his lack of experience in politics. It's hurt him for five years and is going to continue. When he runs into a problem or an opposition from the other side, he doesn't sit down and try to figure out how he can get part of what he wants done. Instead, he uses it to, basically, you know, as I say, demagogue the other side. And for that reason, I don't think there's going to be any change.
GIGOT: But hasn't it worked? I mean, he won in 2008. He won in 2012. They figure, hey, it worked in 2012 against Romney, let's use it against Boehner and company.
O'GRADY: Well, it's the only game he knows. But as Dan says, his credibility is really hurt. And I think he needs one or two wins under his belt. So I think he's in for another troubling year.
GIGOT: Let's talk about Congress.
What can get done, James? Do you see anything?
JAMES FREEMAN, ASSISTANT EDITORIAL PAGE EDITOR: I think there are two areas where he really has an opportunity, if he wants to put aside a lot of this class warfare rhetoric and campaigning. I'm not betting on it. While he's vacationing in Hawaii, his old campaign organization was frantically sending out e-mails for the next, I'm sure, set of inequality gripes. He does have opportunity in two areas. One is housing and the other is immigration. Housing, a moment where there is, I think, an opportunity to get a bipartisan agreement that government and these mortgage monsters they created, Fannie Mae and Freddie Mac, should withdraw from the more damage market.
FREEMAN: It's a good time to do it.
GIGOT: Because housing market has come back and home prices are rising again.
FREEMAN: Yeah. I think the Senate is ripe for a deal if -- if he either stays out of it or doesn't decide that this is another opportunity to campaign against bankers.
GIGOT: What about immigration, Dan? Because that --
HENNINGER: Well, let's talk about that.
GIGOT: Because I think Boehner, I think he wants a deal, if he can get it. I know Paul Ryan would like to get some kind of deal. A lot of Republicans would like to get this issue passed.
HENNINGER: Yes. I think there's two ways to think about the immigration issue. Obama's support among Hispanic voters, which is one of the key parts of his base and re-election, has fallen off. He's down about 14 points among Hispanic, and among young voters as well. He could go in one of two directions. Put the Republicans in a position where it's impossible for them to vote for the immigration bill, and say to Hispanic voters, look, Republicans don't like you, you can't vote for them. Or --
GIGOT: Use the issue against them.
HENNINGER: Or he can get a combination bill, which I think would show he and Washington can do something. The result I think would be kind of a status-quo vote, which would mean that maybe some of those Democratic Senators would survive --
GIGOT: It would help them in the Senate.
HENNINGER: It would help them in the Senate. The question is, does Obama have it in him not to scapegoat the Republican Party.
GIGOT: And your short answer?
HENNINGER: I don't think he does.
O'GRADY: I think, thinking that he would go for an immigration deal is triumph of hope over experience.
FREEMAN: Just go for something small. High-tech immigration. Let in as many engineers as want to come in here. That would be a good start. Show good faith.
GIGOT: What about ObamaCare, James? Is that going to see a revival? Because, obviously, the Republicans are pinning their election hopes in 2014 on attacking ObamaCare and saying, look, everything we predicted about it has come true.
FREEMAN: Yeah. I don't see the revival. Obviously, the media is very excited, ready to do the come-back story. And, look, after all of that problem, the website is working now, everyone is getting coverage. They'll talk about the numbers that will now get insurance. But I think it's the quality of that insurance that the patient is not going to ignore, that they don't get the doctor they had, that they don't get the coverage they wanted. And it's built in now that we're going to get rate spikes next fall based on who is signed up, mainly older sicker people.
GIGOT: They're hoping --
O'GRADY: Yeah, I think --
GIGOT: Go ahead, Mary.
O'GRADY: -- 2014 will be the story of the deterioration of quality of care.
GIGOT: OK. Boy, hope you're wrong on that one, Mary.
When we come back, soaring stocks in 2013 have many feeling investors and economists feeling bullish. So will the market continue its climb or is there trouble ahead in the New Year?
GIGOT: Well, 2013 was certainly good for investors with the stock market notching its best year since 1995 and the S&P 500 posting a whopping 30 percent gain. So will the market momentum continue in 2014 or is a slowdown ahead?
So, Mary, let's just talk -- apart from the markets, the economy is showing signs, some evidence, that maybe we're getting out of the five-year doldrums here and popping up, finally getting, you know, what they call liftoff into more normal growth.
GIGOT: What do you think?
O'GRADY: I think this might be the recovery that we should have had four or five years ago. But I think we have to be careful, because when you have corporations doing very well, why are they doing well? Falling energy prices, a lot of pressure on wages, so they haven't had to raise wages, and they've done quite a bit of financial engineering with very low interest rates from the Fed.
GIGOT: They haven't been firing.
O'GRADY: The effect of that is the wealth effect in the stock market. So you have the stock market -- the corporations doing very well, the stock market going up.
O'GRADY: And therefore, lots of people who own stock feeling wealthier than they did four or five years ago. The thing to watch here is business investment, capital expenditure. If that starts to look like companies are actually committed to putting more capital to work, then I think we start to see -- then we can say, OK, we're in the throes of a real recovery. But until then, I think a little bit of caution would be in order.
GIGOT: That's a function of confidence. Do you see sort of generally things getting better? Then, as a business, you're able to -- willing to make a bigger bet on investment. And we're beginning to see some signs that may be the case.
O'GRADY: I think one of the reasons why we're seeing those signs is that the loyal opposition in Washington has actually started to show that old pushback against some of these things that have caused so much uncertainty over the last four or five years.
FREEMAN: Yes, I think there is reason for optimism. Very good growth in the third quarter. A good report this week on manufacturing. Orders are up. Production is up. So I think -- I think the economy not -- because of this drag from Washington not doing what it should, is should be a good year.
GIGOT: Vindication for the Federal Reserve and Ben Bernanke as he hustled out of town, James?
FREEMAN: Well --
GIGOT: I mean --
GIGOT: Was he right?
FREEMAN: As he hustles out of town, he's not taking the punch bowl with him. That's what I worry about.
Because they've been printing money, doing everything they can to offset all of the mistakes on the political side that the political authorities have made. They've maintained very low interest rates. Now the economy's growing again. I don't see anything in the record of Janet Yellen to say she's the one who's --
GIGOT: She's his --
FREEMAN: -- now going to stop all the money printing. They're talking about a taper. This is a teeny tiny little baby step toward less intervention in the markets.
GIGOT: The taper is fewer bond purchases by the Federal Reserve.
GIGOT: And Janet Yellen is going to be Ben Bernanke's successor at the federal bank.
So you're worried that if they do start to taper more aggressively, that's when the markets might get shaky?
FREEMAN: Well, I think this year -- I would expect a good year for the markets. And the history says, based on last year, after that kind of an increase, you normally get an up year the next year. I think the reckoning probably comes later. And it might be worst because I don't see her stopping the money printing.
GIGOT: Maybe --
GIGOT: Go ahead, Mary.
O'GRADY: Well, forget about the money printing going forward. You already have $3 5 trillion on the balance sheet. And if investors start to see opportunities out there and that money starts to get off the balance sheet and into the economy, we'll have the risk of inflation.
GIGOT: Here's another good sign, Dan, and that's what you might call a virtuous gridlock. The fact is, they haven't been -- Republicans hold the House. They're stopping most of the bad things happening, except in regulation, where they can't. And the president has his agenda, but he can't get it passed. So not much happens. Businesses go around and say, OK, they've done a lot of harm, but they're not going to do anymore.
GIGOT: So maybe we can risk that -- invest in building that plant, hiring that extra hundred people.
HENNINGER: Yeah, well, there's a couple of words in there. "Maybe they can risk doing that" and "Congress is the one that's caught in gridlock." The executive branch is not caught in gridlock.
HENNINGER: And, you know, I think we've made it pretty clear. The real economy is poised to take off. These corporations have a lot of cash. They're ready to invest. They're impatient to invest. But there is a significant regulatory drag out there, both, the uncertainty over the health care plan, Dodd/frank is still being implemented, the president has shown himself willing to sic the Environmental Protection Agency or the Labor Department on various sectors of the economy. The problem is, I think, the president himself doesn't fully understand the way the private economy works. He thinks these regulatory interventions don't matter. They matter a lot. So we'll get some growth, but I don't think we're going to get back to the growth level we should be at --
GIGOT: Just as a final point, the big weight on the economy, particularly small businesses, small business job creation, continues to be ObamaCare. We'll have to wait and see how that waves through before I think we'll see more hiring at that small business level.
All right. When we come back, the administration making diplomacy its top priority in 2014 with a push for Middle East peace and an Iran nuclear accord. But as fears grow of al Qaeda's resurgence in the region, will it be a year of historic accords or growing world disorder?
GIGOT: Well, the Obama administration is kicking off the New Year with a renewed push for peace in the Middle East with Secretary of State John Kerry arriving in the region this week for talks with the Israelis and Palestinians. Will 2014 see historic accords and the triumph of diplomacy or growing global disorder?
We're back with Dan Henninger and Mary O'Grady, Wall Street Journal editorial board member, Matt Kaminski, also joins the panel.
GIGOT: Let's focus on this diplomacy first.
What chances is there for either of these deals, Iran and Palestine?
MATT KAMINSKI, EDITORIAL BOARD MEMBER: Well, it's almost strange to see John Kerry arrive in Israel by some kind of reflex of the last decade. We have to try and get peace between the Israelis and Palestinians. Meanwhile --
GIGOT: He's spending a lot of time there.
KAMINSKI: He is.
But that's because, all around Israel, you'll see, in Lebanon, in Syria, in Iraq, in Egypt, growing instability, the spread of the Syrian conflict across these borders, the rise of al Qaeda again. We were told it was almost dead, the rise of al Qaeda, because of the Syrian civil war. These are really going to be the concerns for 2014 I think.
GIGOT: So you say that's the big problem. Meanwhile, he's paying attention over here to a conflict, which if not settled, at least contained.
KAMINSKI: It's just very bizarre. But it reflects an ambition that President Obama came into office with, saying I'm going to extend a hand to our enemies. Really, the single-minded focus of trying to negotiate peace without realizing this sends a message of weakness to our adversaries in the region, particularly Iran, which is very much behind the Syrian civil war and behind its spread to Lebanon.
GIGOT: What about the Iranian nuclear deal, Dan? I think this is the big, going to be the big story of 2014.
HENNINGER: Well, I don't have much hope for the Iranian nuclear deal, I really don't. I think --
GIGOT: You mean for -- for it getting done?
HENNINGER: Completing. For getting it done.
GIGOT: For getting it down as opposed to getting a bad deal done?
HENNINGER: Well, you know, they have not been even able to agree on the terms of the interim agreement. So it's not --
GIGOT: A bad sign.
HENNINGER: That's not going to make that six-month deadline. But I think Obama would like to keep the focus on that, just to sort of distract attention so that he doesn't have to deal with some of these other issues like Syria. But the problem is that al Qaeda, for instance, is on the rise in Iraq. They've just taken over half of Fallujah and Ramadi and Anbar Province.
HENNINGER: And they're spreading in Syria. They're even spreading in Africa. These are all places Obama has either withdrawn from or decided, like with Syria, he doesn't want to commit to. So he has got himself in a dilemma. The places where they are really hot, he doesn't want to go. He'd rather concentrate on something diplomatic, like Iran.
GIGOT: But I think Obama would say, well, that's a problem over there. You know, we got out of Iraq. It's not a big issue anymore for us. The American public don't (sic) want to go back there. So, look, it's unfortunate, but there it is. It's not our concern.
HENNINGER: The problem always, Paul, is if it blows up high enough, the United States, inevitably, gets drawn into these conflicts, because we're the only one who can intervene. That's the danger.
GIGOT: And if the terror enclave, al Qaeda enclave develops in Anbar Province in the west of Iraq, they could stage operations from there all around the world, including us.
Mary, what about other hot spots around the world? What are you worried about?
O'GRADY: Well, you know, the idea that President Obama is signaling weakness in the Middle East obviously is not contained there. Everyone around the world sees it. I think, in Asia, China, some of the things that China's been doing in -- with its navy and challenging the U.S. in international waters, I think this is partly a reflection, not just of his enthusiasm to retreat, but also the weakness of the U.S. economy. I mean, you cannot be a world superpower with a second-rate economy. And China feels emboldened by looking at all the problems he has and the weakness that he has signaled.
GIGOT: Matt, what else are you looking at?
KAMINSKI: I think it will be a very interesting year in Russia. You have the Olympics coming up in Sochi. It's a very big test for Putin. Several terrorist attacks. But I think, in general, Putin has seemed strong because he's really cracked down on the opposition. But he's got a weakening economy. He's also trying to reassert himself in his neighborhood. You have the ongoing protests in Ukraine --
KAMINSKI: -- to join Europe instead of being pushed back into Russia's arms. I think the European story -- we always forget about Europe. It's sort of settled. That's not settled yet.
GIGOT: Do you -- are you worried about terrorism at the Olympics? Do you think they will be able to contain it around Sochi and the various sites, the ski slopes --
KAMINSKI: I think it's always a worry in Russia. Because, honestly, that's actually a security state without security. You have a corrupt police force there. And Putin has not shown over the last 14 years that he's really got a handle on his Islamist al Qaeda problem.
HENNINGER: I'm looking a little bit at Africa, Paul, and that is because there is a lot of significant fighting going on in Africa. Central African Republic has produced 800,000 refugees. There's fighting going on in Congo. Bad as that is, the issue is these are breeding grounds for Islamic fundamentalism and al Qaeda. They're down there recruiting people into the movement. They train them and then they move them around in the region, up in towards northern Africa, up towards the Middle East. So, so long as the world shapes like that, al Qaeda seems to be the one force out there that is benefiting.
O'GRADY: The real problem, it seems to me, all over the world is that the president has, as I said, signaled his weakness, but the world knows also that the American people are not behind any kind of intervention that he would lead because he hasn't convinced them, he hasn't worked at all in talking about our interests in the rest of the world.
KAMINSKI: I think --
GIGOT: Go ahead, Matt.
KAMINSKI: This president is a president from Chicago, famous for his improvisation --
-- but he's not able to improvise in foreign policy.
GIGOT: Well, we'll see.
We have to take one more break. When we come back, "Hits and Misses" of the week.
GIGOT: Time now for "Hits and Misses" of the week. And this week, our panel makes some predictions for 2014.
Mary, first to you?
O'GRADY: Paul, I'm predicting that the risk to human life of transporting oil by train is going to become more visible to the American public. And, you know, exhibit C would be the fireball we had last week in North Dakota. But we also had a similar event in Alabama last year. And we had 47 people killed in Quebec. I think that, along with the pressure from Senate Democrats in close races, will convince the president to approve the Keystone Pipeline.
GIGOT: You're an optimist, Mary. God bless you.
KAMINSKI: Paul, last year was a very bad year for democracy. This year's going to be a very bad year for strong men in the world. Turkey with Recep Tayyip Erdogan, Vladimir Putin are in trouble for economic and political reasons. I think the young Kim son in North Korea seems to be troubling. But I'll finish off by predicting, as every year, that Castros, both Fidel and Raul, will fall this year --
GIGOT: A crazy --
O'GRADY: And you say I'm an optimist.
GIGOT: Bring us down to earth, Dan, please.
HENNINGER: You make not like this one.
Global warming, a phrase we're all familiar with. I think it's going to die this year as the environmental movement decides, given the kind of incredible cold weather we've had this weekend, they're going to wrap it all into the phrase "climate change." This means the problem is totally unsolvable and that they'll be able to get grant money from now until the apocalypse.
GIGOT: OK, that's sort of a good news/bad news thing.
GIGOT: All right. So I'm really cheerful coming out of this for 2014.
That's it for this week's show. Thanks to my panel and to all of you for watching. I'm Paul Gigot. Hope to see you right here next week.
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