The Bear Is After Paul O’Neill

As another nerve-racking day for the markets winds down, isn’t there someone we can blame? Actually one candidate has emerged: Treasury Secretary Paul O’Neill. What’s interesting is that the case against him, such as it is, probably says less about O’Neill than it does about the inevitability that the retreating bull market has got to gore somebody.

This past Monday the Wall Street Journal ran a long, Page One feature on O’Neill’s “rocky start.” The former chief executive of Alcoa was appointed amid pretty widespread applause—but that was months ago. Now the Journal cites a poll “of top traders in major markets” taken last week by Medley Global Advisors. While O’Neill’s two predecessors, Lawrence Summers, and before that the widely worshipped Robert Rubin, each had approval ratings over 90 percent, O’Neill is coming in at 42 percent. Not good.

Admittedly, O’Neill has made some moves that have not played well, particularly his curious refusal to let go of his Alcoa options. But does Wall Street really care about that? I doubt it. And most of O’Neill’s other public “gaffes” are of the oops-I-said-what-I-meant variety, most famously his skepticism about tax cuts during his confirmation hearing.

So what he has been doing wrong that might actually affect the markets? On Tuesday night, a CNBC evening rap session featuring James Cramer, Larry Kudlow, and David Jones (of Aubrey G. Lanston & Co.) dissected that day’s Fed announcement and the weakness in stocks that followed it. Cramer had earlier written a column for wishing for the good old days when Rubin ran Treasury—”I could see him calling a couple of people and saying, ‘Look, we have this one under control. Fed’s going to cut to 3.5 percent, the economy is sound, this will all blow over.’ ” On CNBC he complained that he felt more likely to get a call from the Yankees’ right fielder than from the Treasury, which he said seems “out of the loop.” (Come on, Mr. Secretary—Cramer’s waiting by the phone!) Anyway, Kudlow said that, actually, he’d gotten calls, but this didn’t stop Jones from saying O’Neill had made “silly” statements and would be the first Bush Cabinet member to go.

There’s no way of really evaluating the alleged power of Rubin’s calming sweet talk. But part of the way Rubin’s importance was explained was that a “liberal” like Bill Clinton might be tempted to ignore the Street, so traders were reassured to see “one of their own” in Washington to keep the policy-crazy wonks of the Democratic administration from messing things up. The weird thing about the lack of confidence traders seem to have in O’Neill is that you wouldn’t think they would need a similar ambassador figure in a Republican Cabinet (appointed with blue-chip efficiency by our famously M.B.A.-wielding  chief executive). Do they really need O’Neill to tell them what they already believe (that the Fed funds rate will keep falling, that the economy is sound, and it will all blow over)?

Maybe O’Neill really is out of touch, frittering away his time on ergonomics debates while the Dow Jones burns. Whether he is or not, I have a feeling the rehabilitation of his public image is largely going to be left to the markets; a few more weeks like this one and traders won’t even take his phone calls. And the good news for O’Neill? Well, so far at least, Alcoa shares are holding up reasonably well.