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US Political Economy
Political Show Time on Wall Street
by Alan Abelson
Finally, it's over.
No, we don't mean the bear market. Heck, that's hardly just begun.
And we're not talking about the World Series. That's ancient news.
Nor are we referring to the unbearable suspense as to whether Oprah would
deign to renew her contract with Viacom (she did).
The "it" that's finally over is, of course, the contest to decide who runs
the country for the next four years. Oh, sure, it's not quite over -- there's
still the little business of tallying the votes.
But that's a mere technicality. Barring some stunning last-minute revelation,
such as that one of the two leading presidential candidates actually has an
IQ greater than his age (and they're both comparatively young), for all
intents and purposes, the 2000 election is history.
You won't get much argument from us if you're inclined to say "good
riddance." How can anyone work up much excitement over the choice between a
guy who claims to be fluent in two languages, neither of which happens to be
English, and a guy who has the charm of a crocodile and the smile to go with
it?
Still, whatever its failings, this election has not been without a redeeming
circumstance here, an illuminating turn there. Jon Corzine, for example, the
refugee from Goldman Sachs in dire need of employment, has spent $50 million
in hopes of becoming the junior senator from New Jersey. Whether he succeeds
or not, we'll soon find out. Either way, since the dough is all his, Mr.
Corzine deserves a heap of credit for demonstrating how to redistribute the
wealth by taxing not the electorate's income, property or consumption, but
its credulousness, which seems inexhaustible.
In New York, meanwhile, the Senate race has come down to whether Mrs. Clinton
was responsible for the terrorist bombing of the USS Cole or whether Mr.
Lazio is responsible for global warming. Our own hunch is that the real
culprit is Rudy Giuliani, who's responsible for the fact that the next
senator for New York will be either Mrs. Clinton or Mr. Lazio.
In Missouri, the incumbent senator, John Ashcroft, is in the fight of his
life against a dead man, the former governor, Mel Carnahan, who died in a
plane crash three weeks before the election. The late Mr. Carnahan remains on
the ballot and, at this writing, held a lead over Mr. Ashcroft, however
statistically insignificant. If Mr. Carnahan wins, he will be the only
deceased person ever elected to the U.S. Senate, although admittedly it's
often tough to tell.
Several souls from beyond the great divide, incidentally, have achieved that
status in the House. Which proves how much more welcoming and -- to slip into
current politically correct usage -- inclusive that body is than the Senate.
For the departed to run for any office is, as intimated, a singular
occurrence. By contrast, there's a long and honorable tradition of their
voting in elections. We're grateful to the estimable Jack Sheehan, a former
governor of the Fed and current chairman of GlobalLift Technologies, for
passing on the relevant story of the Philadelphia politico who said that when
he died, he wanted to be buried in Chicago because he was eager to stay
active in politics.
Just about last but not least among the enlivening disclosures bared during
the profoundly soporific campaign was that George Bush had been guilty of
DUI, or driving under the influence of alcohol, when he was a mere stripling
of 30. At the very least, that put to rest all the complaints about Mr. Bush
being a man of no convictions.
The Democrats were leery of making too much of the episode lest the shocking
truth be made public that when he was 30, Mr. Gore was convicted of DUIS, or
driving under the influence of sanctimoniousness. And despite entry into all
manner of 12-step programs, Mr. Gore has never been able to kick the habit.
While pundits chorused that the election was too close to call -- indeed, a
number suggested that it would be the first split decision since 1888, with
Bush taking the popular vote and Gore getting the nod from the Electoral
College -- Wall Street decisively signaled Bush as the winner. And it did so
not through the dubious device of polls, but by putting its money where its
sentiments lay.
For example, investors quietly accumulated tobacco stocks on the assumption
that, as President, Mr. Bush will see, as he vowed to do, that the big
federal lawsuit against the cigarette companies is dropped. And, as our good
friend Larry Feinberg, the oracle of Oracle Partners, a top-notch hedge fund
that specializes in pharmaceutical and biotech stocks, reminds us, the drug
sector has been gathering strength in obvious anticipation of a Bush victory,
since it would remove the specter of price controls.
Our own favorite indicator of how the market has been betting is the action
in Microsoft. Figuring prominently in the descent of the shares from close to
$120 last December to $48 and change in mid-October was, as we suspect you
might just be aware, the government's antitrust suit, capped by the judge's
findings that Microsoft did naughty things as a competitor.
However, since hitting its nadir (no relation to Ralph) three weeks ago,
investors have bid up the stock sharply, at one point to over $70. Their
rationale, simply, is that they've become increasingly convinced that Bush
will be President and, though not renowned for clemency, he'll be gentle with
this particular corporate sinner.
Of course, if Wall Street's wrong -- hard as it is to conceive, that has
happened once or twice -- then you might be uncomfortable for a spell owning
drug stocks or Microsoft. Widening our focus, we know only two men in the
entire country, perhaps in the entire world, who are blessed with
foreknowledge of what a Gore win and what a Bush win would mean for the
future course of the stock market as a whole.
Unfortunately, they don't agree.
A fearless forecast, to borrow a phrase from that funny little fellow with
the big ears who used to run for President every four years, is that whoever
gets the job, the next President is likely to find it isn't all milk and
honey. And that unpleasant discovery is likely to come sooner rather than
later.
The stark prediction springs from two simple facts. Fact No. 1, for the first
time since '94, the economy is starting to breathe heavily. Fact No. 2, for
the first time since this stock market took wing, it's seriously struggling.
These two decidedly unpleasant facts are, of course, tied one to the other.
Granted that the economy and the stock market have always had a more than
nodding acquaintanceship. But never before have they been as tightly entwined
as they are now.
For one thing, ownership in equities runs enormously high, encompassing
something like 50% of all households. And interest in equities, as the
popularity of tout TV and the still populous mess of Websites and so-called
magazines devoted to stock tips indicate, runs easily as high.
At the same time, the experience of investing has been exhilarating and
rewarding in the extreme, at least until this past spring. A hint of just how
rewarding is offered by Jim Bianco, master numbers-cruncher and proprietor of
Bianco Research. Jim reckons that since this great bull market got going in
October 1990, the public has accumulated a tidy $754 billion in unrealized
mutual-fund profits.
So, despite the collapse of the Internets and the wreck of the techs and the
odd disaster, common folk still have reason aplenty to cheer the stock
market, and we're not even counting the gains taken or waiting to be taken in
the plush portfolios of the myriads of do-it-yourself investors.
What has sent the Dow from 2350 a decade-plus ago to 10,800 last Friday was
first and foremost the unprecedented expansion-boom of the economy, sparked
by technology, to be sure, but also by the autos, housing and scores of other
clunky old industries. Yes, capital spending on tech was a big spur, but, how
soon we forget, it was the clunky old industries that did a lot of that
spending. And the consumer probably had a bit to do with the boom, too, but
probably accounted for only two-thirds or so of it.
And here's where the daisy chain makes its appearance. For what enspirited
the consumer was the economy and the stock market, and the stock market, in
turn, fired up the economy, both via a ballooning wealth effect and providing
the wherewithal for enterprise, new and old both.
We're describing, in brief, the most marvelous phenomenon since the discovery
of compound interest -- the virtuous circle. Which, besides showering more
people with more riches than ever before, occasioned a true miracle: the
transformation of vast government deficits into surpluses. A transformation
that enabled both candidates to spend the summer and part of the fall in
fantasy camp.
And that brings us full circle to why either President Bush or President Gore
is apt to find that unhappy days are here again.
One reason, as noted at the top of this screed, is that the economy is
beginning to act very much the worse for wear. That's true both for the New
Economy, where overcapacity is rearing its ugly head in computers,
semiconductors, telecommunications and, relatedly, fiber-optics (we won't
bore you with the whole roster) and the Old Economy, where, to cite but one
conspicuous example, the autos seem to be running out of gas.
Another reason, also noted, is that the stock market can't get out of its own
way, despite massive infusions of hundreds of billions of dollars from buyers
of mutual funds and nearly $180 billion in the past year alone from overseas
investors. What happens when fund buyers and strangers stop or even cut down
sharply -- not to mention what happens should they be moved to cash in their
holdings? Please, don't answer.
Suffice it to say this is precisely the way a virtuous circle begins to
dissolve and gradually, or sometimes rapidly, reassembles itself into a less
felicitous version. Good luck, Mr. President, whoever you are.
Barron's, November 6, 2000
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Em Hotep, Peace Be,
All My Relations.
Omnia Bona Bonis,
Adieu, Adios, Aloha.
Amen.
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