Market Odds and Ends
Jude Wanniski, Michael Churchill and Michael Darda
November 15, 2000


BUSH/GORE: Former Secretary of State Jim Baker thinks the stock market wants George W. Bush to win, but we do not see that correlation. The big turnaround in NASDAQ on Monday came when House Speaker Denny Hastert announced that the GOP congressional leaders had postponed the lame-duck session to December 5, to avoid distractions. This means the $248 billion tax cut has a much better chance of making it into law before year’s end. Senate Majority Leader Trent Lott, who promised the markets the tax cuts before the election recess, still says he will press for it in December. Our Karen Kerrigan points out Clinton and the Democrats have essentially signed off on the tax provisions but had been holding out for more spending on issues related to education and labor. If Gore wins, she thinks there will be a lame-duck tilt toward spending, and with Bush victory, a tilt-toward tax cuts, but that there should be a bill with both. It would provide an early indication of how partisan or bipartisan the 107th Congress might be. We of course are rooting for Bush, but only because we think there should be better economic policies in a Bush administration once personnel issues are clearer. NASDAQ did quickly climb 20 points on Tuesday when a favorable court decision was announced for Bush, but it was already up 152 points on the day. (JW)

LARRY LINDSEY: Japanese political leaders were up in arms today as Bush top economist Lawrence Lindsey, rumored to be Bush’s selection for Treasury Secretary, apparently mentioned weakening the dollar to combat the U.S. current account deficit. Jiji Press and Bridge News reports began circulating quotes from Japanese policymakers who claimed that during a meeting with LDP officials, Lindsey said that a Bush administration would discard the current “strong dollar” policy and replace it with a “weak” one in order to address the U.S. trade imbalance. Hours after his comments ran in the Japanese press, Lindsey denied the quotes attributed to him, saying that Japanese officials can say what they want but that he believes the U.S. should indeed maintain a “strong dollar policy.” We would hope the flap causes Bush to rethink Lindsey, who definitely does not belong at Treasury. A usually reliable source tells us Fed Chairman Alan Greenspan shares this opinion of Lindsey. (MD)

FEDWATCH: We put the odds at 50/50 that the Fed moves to a neutral bias or cuts the fed funds rate outright at its December 19 meeting. We definitely should see a rate cut by March. In coming months, the FOMC will meet a steady stream of price data more dovish than consensus expectations in the wake of four years of steady dollar deflation and the easing of relative price increases related to oil. Core PPI is now running at a 1.1% annual rate and the personal consumption expenditures deflator is running at a 2.2% annual rate. The latter measure has closely tracked the oil price, which we expect to decline toward the $18/bbl level during the next 12-16 months. The long bond should move below 5.70% in coming months, as the economy slows, the market discounts an alteration in the Fed’s interest-rate posture, and inflation indices react to an easing of relative price pressures.(MD)

OIL, GOLD, and OIL SERVICE STOCKS: West Texas Intermediate crude oil has climbed for six straight sessions and now stands at $35.06 per barrel. Oil has NEVER been this far away from its 15.1:1 historical equilibrium ratio with gold for any length of time. At the current $265/oz. gold price, the equilibrium price for oil would be $17.55/bbl -- or almost exactly 50% of the current price. It seems unlikely this divergence could be sustained for another twelve months, and while gold could go up under certain circumstances, it is more likely oil will fall. Still, we continue to see ample evidence that oil industry participants do not really believe the $35/bbl crude price and thus may not be allocating enough capital to increase production capacity to needed levels. It remains hard to judge exactly how much capital is being allocated. Oil service stocks have declined for the past two months, after rising for two years on strengthening crude prices. Historically, oil service stocks have been a good leading indicator for crude prices, and their decline suggest those in the know expect an oil price decline. (MC)

ABM/GLOBAL WARMING: The tightness of the races for President and Congress suggests that the issues on which the two parties seem furthest apart will have little chance of enactment in the 107th Congress. In our monthly client conference call today, I made the surmise that while Bush seemed a sure thing on the Friday before the election, the last-minute break for Gore among independents came as Bush spent the last weekend touting his commitment to build a nationwide antiballistic missile system. Bob Novak tells me he spent that last weekend with Bush’s campaign plane and noted how one enormous, enthusiastic crowd he encountered was instantly turned off when he focused on the ABM. If he would have had an easy win, Bush would have been pushed by the old Cold Warriors to commit the nation to this trillion-dollar boondoggle. An easy Gore victory would have led the VP to claim global warming and the Kyoto Treaty as his primary mission. (JW)

ESTATE TAX: The issue we already hear has plenty of “centrist” backing in the 107th Congress is the estate tax -- not its elimination, as espoused by Bush, but sharp reductions along the lines Rep. Charlie Rangel [D-NY] proposed earlier this year as an alternative to total scrubbing of the death tax. Rangel, ranking Democrat on House Ways&Means, gets along extremely well with Rep. Phil Crane [R-IL], who will chair the committee if he can beat back a challenge by Rep. Bill Thomas [R-CA]. Crane is normally thought of as a “right winger” and Thomas as a “moderate,” but Crane gets along with people and I’m told Thomas is extremely difficult. A Crane victory would be a very good sign. I’m also told that the first thing he plans to do if and when he gets the chair is to call Rangel and offer open communications and cooperation, something retiring GOP chairman Bill Archer never did. (JW)

WASHINGTON SENATOR: The Senate race in Washington state still is up in the air, with incumbent Slade Gorton’s lead dwindling to a few thousand votes, while Seattle’s absentee ballots have yet to be recorded. Gorton generally has been good on economic issues, but Democrat Mary Cantwell, who comes out of the New Economy in Microsoft land, might actually be a net plus for the Senate, although I am too far away to make that call. The several areas of the nation that are identified with cyberspace and the New Economy went overwhelmingly for Al Gore, roughly 2:1. Their sympathies have to be taken into account. (JW)It is rated "PG." (JW)