5/04/00 3:35 p.m.
The Bush Bull Market
Wall Street will begin to cast an eye toward the economic future under a Republican administration.

By William P. Kucewicz , former member of the Wall Street Journal editorial board, and editor of geoinvestor.com.

hile the Holy Saturday Miami raid and seizure of Elian Gonzalez was a black day for governmental restraint in the United States, it nonetheless will come to mark the beginning of the Bush Bull Market. The growing public dismay with the Clinton administration is seriously injuring Vice President Al Gore’s chances in the November presidential election, making a victory by George W. Bush, Jr. all but certain. Wall Street therefore will begin to look beyond Alan Greenspan, interest rates and even corporate earnings, casting an eye toward the economic future under a Republican administration and a GOP Congress.

If things weren’t bad enough for Gore, the Clinton administration’s demand for a breakup of Microsoft Corp. will only further roil the U.S. investor class

It now seems inevitable that politics, not economic or profit performance, will be the force driving stock prices for the next half year, at least. There is precedent for this. It can be found in the action of the market in 1980, prior to Ronald Reagan’s unseating of President Jimmy Carter.

Parallels with the Reagan Rally
By this time in 1980, Americans had become utterly disenchanted with the Carter administration. U.S. hostages were being held in Iran, Arab oil states were toying with America’s car drivers, and Fidel Castro was beginning to send thousands of Cubans to the U.S. in what became known as the Mariel boatlift. The U.S. economy, meanwhile, was in the midst of a recession, with inflation and interest rates in double digits. Wall Street nevertheless commenced a strong rally in late April 1980. Investors turned bullish as the likelihood of a Reagan electoral victory (and subsequent tax cuts) grew. From late April through Election Day, the Nasdaq Composite Index soared more than 44%, the Standard & Poor’s 500 Composite Index rose nearly 32% and the Dow Jones Industrial Average gained almost 27%.

What are the chances 2000 will see a repeat of the 1980 market? Consider the following:

A huge turnout at the November polls is assured, most especially among Republicans. Voters were primed to vent their feelings about the tawdry doings of the Clinton administration even before the predawn seizure of Elian Gonzalez. Now, burned into memory is the surreal image of a flack-jacketed officer goggling his prey, pointing a sub-machinegun at a terrified child, clutched in the arms of the same man who had plucked him from sea not five months before. Memory of the raid will incline voters more than ever to cast their ballots as symbolic verdicts on the past eight years of Clinton governance.

The other major factor weighing against Gore is the absence of a compelling third-party candidate this time ‘round. Clinton, recall, never gained a majority of the popular vote in either 1992 or 1996. He was elected largely thanks to Ross Perot, the Reform Party candidate who siphoned off a considerable number of conservative votes. If not for Perot, most of those voters would have chosen to re-elect President George W. Bush in 1992. This year, even though Patrick Buchanan is still in the race, voters aren’t enthused about a third-party option, and this will give Bush, Jr. an added advantage in November.

The Final Nail in Gore’s Coffin
Fair or not, Gore, the presumptive Democratic presidential nominee, will become the surrogate for Bill Clinton, Attorney General Janet Reno and the entire administration. It will be as if Clinton is running for a third term. Gore did not help himself any by his eleventh-hour pronouncements on Elian’s plight. He could have cut himself loose of Clinton’s apron strings by taking firm issue with the Justice Department’s handling of Elian’s return to his father. Instead, Gore choked.

In response to the raid, the Vice President’s Office issued a lame, two-sentence news release, which sidestepped any direct comment on the raid itself. “As I have said,” the Veep’s release stated, “I believe this issue should have been handled through a family court and with the family coming together. I commend the people of Miami, who in the first difficult hours acted in a calm and lawful way, and I ask all Americans, no matter what their position on this issue, to obey the rule of law.”

That same Saturday held a bitter irony for Gore, radical environmentalist. It marked the 30th Anniversary of Earth Day. So what was the Vice President doing while the rest of the nation was glued to television, pondering the emotion-charged images of the Miami raid? He was at a photo-op on the National Mall in Washington, D.C., appearing at an Earth Day celebration with actor-cum-journalist Leonardo DeCaprio and waxing eloquent about “greenhouse” gases.

Bush, by contrast, seized the moment. “Ours is a nation of laws, not guns. Custody disputes are resolved in the calm of a courtroom, not in the terror of middle-of-the-night raids,” he said. “When Elian’s mother gave her life to bring her son to the land of the free, she could not have possibly dreamed that it would have come to this…. The chilling picture of a little boy being removed from his home at gunpoint defies the values of America and is not an image a freedom loving nation wants to show the world.”

Gore seemed not to share America’s shock and sadness Saturday. And his decision not to hold a press conference to comment on the events in Miami only served to solidify his image as an administration apologist, a Clinton II. It was, to be sure, the final nail in his political coffin. Gore is history.

Microsoft Case Perturbs Investors
Gore won’t be helped either by the Justice Department’s attempts to break up Microsoft. Justice insisting on this course marks the first time the federal government has sought a corporate breakup since the 1974 case against AT&T Corp.

The oddest thing about the case is the paucity of factual evidence of any wrongdoing by Microsoft or harm to consumers. Judge Thomas Penfield Jackson’s two major opinions to date — “Findings of Fact” of Nov. 5, 1999 and “Conclusions of Law” of April 3, 2000 — are filled with such words and phrases as “could,” “if,” “inference,” “even if” and “if it wished.” Judge Jackson seems destined to set a new legal precedent: Guilt by Supposition.

Fact is, the real prices of computer software (and hardware) have been going down, not up. None other than the federal government’s own Bureau of Economic Analysis has reached this conclusion. “Applying the BEA’s chained 1996 dollar formula to computers and software has meant that ‘real,’ inflation-adjusted spending in these categories is higher than the nominal amount actually spent by purchasers,” we noted. Consumers, in others words, are receiving better value for money in their information-technology (IT) purchases, and this alone added sixth-tenths of a percentage point to real gross domestic product (GDP) growth in both 1998 and 1999 and three-tenths of a point in 1996.

Jacuzzis and Ferraris for Everyone?
Both the Elian and Microsoft cases underscore the penchant of the Clinton administration — as well as most Democratic administrations — to exercise the power of government to the fullest in order to achieve its political ends. It a philosophy that does not sit well with many Americans, most especially the entrepreneurs and investors in the so-called “new economy,” which is predicated on free-market competition and limited government.

In this regard, Gore is particularly out of synch, insisting on an even more intrusive government (e.g., eliminating the gasoline-fueled internal combustion engine that propels most automobiles). Gore, for instance, told the jubilant Earth Day throng, “We have to stand against apologists for pollution — those who believe in the old politics of environmental irresponsibility.” The Vice President is nothing if not out of step with the times. Bush, by comparison, is bound to draw heavy voter support in November if for no other reason than he is the “unClinton” candidate.

Forget about policies in this election. Gore could promise a Jacuzzi in every kitchen and two Ferraris in every garage and still not get elected, so long as Bush is popularly perceived as standing opposed to all that Clinton is and personifying all that Clinton is not. It is further likely that Republicans will retain their majorities in the House and Senate. The very prospect of the GOP controlling the federal executive and legislative branches for the first time since 1955 is certain to result in enormously bullish sentiment on Wall Street.

Reasons for Investor Optimism
While George Bush, Jr., alas, is no Ronald Reagan, the stock market can at least expect a reduction in federal income taxes, starting next year. Taxation of the Internet is now highly unlikely, as is further use of federal antitrust law to punish invention. Watch out, though, for a new juggernaut is roaring down the pike: Federal anti-discrimination laws protecting the disabled may be used, for better or worse, to trash most existing Web site designs.

A Bush administration would doubtless provide for less onerous regulation and an improved taxation climate. The result: the economy’s seemingly newfound reliance on intellectual capital would accelerate, resulting in an especially positive outlook for equities. After all, brains, not brand names, are what investors are really paying for these days. In weighing the difference between the so-called “new” and “old” economies, one finds that it is not so much technology itself that matters; it is the intellectual capital behind the technology.

Increasing amounts of time, energy and talent, as Polyconomics’ Jude Wanniski is wont to say, are being devoted to new business ventures (and the recreation of old ones) and spectacular inventions. Intellectual capital is displacing mere labor capital in many respects in today’s “connected” economy, and companies with the best talent have become the big draws on Wall Street. Lowering tax rates at the margin would add significant incentive in the further development of U.S. intellectual capital, and this can only mean one thing as far as Wall Street is concerned: An extended bull market lies ahead.