NYT's "Editorial Notebook" Today
Jude Wanniski
July 18, 1996


Memo To: Steven R. Weisman, The New York Times
From: Jude Wanniski
Re: Your "Editorial Notebook" today

In viewing Bob Dole's performance in parallel with the stock market's, you have come close to hitting on our thesis at Polyconomics that they are intertwined. One might say that Dole's standing in the polls has been falling faster than the NASDAQ index. It has been the core of Poly's analytical framework for 18 years, since we began, that the chief reason the financial markets fluctuate can be traced to political events. In 1977, I traced the 1929 Crash to decisions on the Senate floor in the last week of October that led to President Hoover's signing of the Smoot-Hawley Tariff Act in June of 1930. Markets are like tote boards at the race track, where the odds change before the race begins, except that on Wall Street the odds change during the course of the never-ending political race that has been the history of civilization.

In the present circumstance, we have been advising our clients that the unusual nature of this presidential season would cause great turbulence on Wall Street because of the dramatic shifting of odds up and down. This is because the three-way race between Clinton, Dole and Perot(?) has so many variables. It is not only who will win in November, but what they must do in order to win that effects the values of the nation's productive assets. On July 11, in our client letter, "Market Selloff," we noted the collapse of Dole in the matchups and the sense that a Clinton Democratic sweep may be in the making: "The situation is not that bad, but it does make sense that investors in U.S. equities would pull in their horns by several percentage points in an adjustment of risks." The risks are those associated with another four years of gridlock in our government, with no significant changes in the tax system that is smothering the nation's productive potential. In the July 11 bulletin, we advised: "Going into the August conventions, it will be roller-coaster time on Wall Street, so strap on your seat belt." In our client letter yesterday, "Wall Street Roller Coaster," we advised that there are no calamities in the political mix, only a roller coaster, and that stocks are likelier to be at new highs before the end of the year than reaching lows much below where they have been this year.

The stock market places a daily value on the nation's publicly traded capital stock. It discounts to a present value the nation's long-term productive earning stream. Political decisions that make it easier for our people to make use of their productive talents will cause the valuations on the general stock indices to rise. Errors, like Smoot-Hawley under a GOP President, cause them to decline, just as Wall Street saw one of its greatest real booms follow the Kennedy/LBJ tax cuts of 1964. The financial markets are non-partisan. So must be my analysis of Wall Street.