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November
7, 2002, 9:00 a.m.
Unleash the Agenda
This
great Bush win needs a follow-through.
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or the past few weeks, there have been two defining events waiting on
the horizon. One was the possibility of going into Iraq. The other was
the election outcome. One of these events has come to pass — and
judging from the polling data, most voters went to the polls assuming
that we would be going into Iraq.
In retrospect, Iraq
did not seem to have hurt the Republicans. Rather, a successful campaign
in Iraq will be analogous to the fall of the Berlin Wall. It will greatly
reduce the threat of terrorism much like the fall of the wall signaled
the demise of the threat of communism. The elimination of that type of
risk should be quite bullish for global equities.
As for the election,
the consensus seemed to be that the status quo would prevail. Some argued
that gridlock was good. A Democratic Senate, they said, would provide
some checks and balances on the president's agenda.
But George W. Bush
did not agree, and going against the conventional wisdom he campaigned
hard for many candidates. The voters gave George W. Bush a Republican
Senate, and the president will now have a chance to implement his agenda.
And we can be certain
of this, too: From now on, Bush will be held accountable for the economy.
It is time for the president to stand up and deliver.
The Bush economic
platform calls for making the tax cut and the elimination of the death
tax permanent. If the administration gets ambitious and pursues a reduction
of the double taxation of dividends, market conditions will improve.
The Bush economic
program should be positive for the market. The reduction in regulations
and tax rates should favor the larger capitalization stocks. The dollar
should rise relative to the rest of the world. Whether value stocks outperform
growth stocks depends on the nature of the tax actions. The elimination
of the double taxation of dividends will greatly favor value stocks. A
capital-gains rate cut will favor growth stocks. The nature of the tax
cuts (or increase in incentives) will determine the fate of the value/growth
choices over the next couple of years.
Prior to the election,
it was hard to see how the economy would accelerate and rise above its
current 3% growth rate. It didn't look like corporate earnings were going
much higher than 8% on a year-over-year basis, and that the market rally
of the past month would be short lived (it's hard to justify a bull market
on 8% earnings growth). But maybe the recent market rise was signaling
that a great change in the economic environment was on the horizon.
Indeed, the election
outcome justifies the recent stock-market gains. All Bush needs to do
now is follow through with his economic agenda.
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