Notes on the Revolution XXIX
Jude Wanniski
March 4, 1996


MIXED MARKET: As Wall Street gets more nervous about a budget deal and the fate of the capital gains tax cut, the spread diverges between the hi-cap stocks and the low. On Friday, as the DJIA climbed 50 points, NASDAQ fell 15 -- the equivalent of 75 on the DJIA. Thatís a 125-point swing from hi to low. The spread continued into todayís DJIA run-up, with the NASDAQ flat and the DJIA soaring. Risks associated with hi-caps tend toward monetary policy, debt structures and interest rates. Risks associated with low-caps tend toward tax policy, especially capital gains at the margin. The reappointment of Alan Greenspan as Fed Chairman was welcome news on the monetary-risk front, increasing dollar demand worldwide. Gold, which was threatening to break through $420, has dropped back to $395. The 30-year bond came off its recent peak of 6.5% down to 6.3%. The debate in Washington continues over a budget deal expected later this month. Senate Republicans, who are biased toward hi-cap company stocks and budget balance, are debating last-minute details with House Republicans, who are biased toward small business and capital gains. Speaker Newt Gingrich, who has been making the growth arguments with some passion of late, should be able to pull a capgains rabbit out of his hat. If he cannot, there will be a sharp NASDAQ correction. The high-cap DJIA stocks will come down in a hurry as well. Instead of a shift of risk within the equity universe, values will simply evaporate in the absence of a deal on capgains. When the pyramid sinks at the bottom, the top comes down accordingly. Remember also that a universe of taxpayers have to cover the tax bill for their capgains of 1995 by the 15th of April. Cash flow then shifts from the private capital pool to the government.

DOLE: The Republican frontrunner had a big victory in South Carolina Saturday, but he ran the best campaign there. He did not do or say anything to change our mind that he still would be demolished in a general election with President Clinton. He simply allowed his organization to get their votes behind him as the safest candidate. While publicly patting himself on the back for pulling his negative TV spots off the air, his campaign flooded the airways with spots characterizing Pat Buchanan as an extremist. ABCís Ted Koppel ran an absolutely slanderous "Nightline" attack on Buchanan, purporting to show that he was raised in an anti-Semitic Catholic household. New York Times columnist William Safire also pounded Pat by ranking him on an anti-Semitic scale with Louis Farrakhan and Adolf Hitler. The attacks have escalated in New York, with Doleís henchman, Senator Al DíAmato, donning a yarmulke for an attack on Buchanan. Steve Forbes finished a poor third in S.C., making a string of mistakes on the advice of his campaign team. The campaign nominally is now headed by former Wyoming Sen. Malcolm Wallop, but it remains dominated by the Jesse Helms hitmen from North Carolina. Steve lashed out at Lamar Alexander in the S.C. debate instead of finessing Lamarís complaints about his negative TV spots, thereby reinforcing the impression that he is a negative fellow. He also was counseled to publicly discount the S.C. primary, to lower expectations, but this only conveyed to S.C. Republicans an impression that he was less interested in them than they expect him to be.

FORBES: Except for his S.C. goof, Steveís performance on the stump and in media appearances continues to improve, reflecting the fact that he is the best candidate in the field. The Dole camp now acknowledges that he is a greater threat than Buchanan. The fact that Dole soon will be out of money increases his reliance on the state governors and party organization. This will be enough unless Steve can improve the quality of his campaign, which still has nobody on board who has ever done a presidential campaign before. The TV spots are positive, but of poor quality, and the candidate scarcely has time to sleep, let alone ponder strategy. Jack Kemp and Ted Forstmann, who have been complaining about the negative cast to the media campaign, could give an enormous boost to Steve if they came aboard. Kemp met with Wallop Friday, trying to find a way to bring fresh talent into the campaign -- including those who were cut out by the Tarheels. He correctly argues that while he and Forstmann are enormously impressed with Steve, neither of them in good conscience can ask their allies to board a campaign which has no experienced pros at the helm. It had been thought Wallop would be making positive changes, but so far he has dithered. Time is running out if Kemp is to have any impact on Thursdayís New York primary. The political world now is assuming Kemp will remain neutral, but I still think he would come aboard if he knew for sure he could influence the tone and tenor of the campaign.

ALEXANDER: A S.C. finish just above 10% has kept Lamarís candidacy alive with federal matching funds. If he drops below that level, he will rapidly run out of cash. Heís not on the New York ballot, and thus is encouraging his supporters to support Forbes, hoping to halt the Dole inevitability bandwagon. He continues to believe that if Dole doesnít show up in San Diego with the nomination in hand, he can wind up the compromise choice of the convention. Dole has so poisoned his relations with Pat Buchanan that it seems impossible that he could ever unite the party for a serious run at Clinton. Indianaís Richard Lugar, who is running a quiet campaign, hangs in there for the same reason. The California primary March 26 looms larger now that Doleís coffers will be empty by then. Forbes would do well in the state, especially if he replicates his western appeal in Arizona -- and has Kemp by his side.

BUCHANAN: Pat allowed his early successes to mislead him into thinking he need only double his bets on protectionism and abortion. Arizona and South Carolina have sobered him up. He seemed practically civilized on the weekend talk shows and in the Georgia debate last night -- which he opened by protesting the absence of Alan Keyes. A few adjustments and Pat will be winning here and there in a three- or four-man race, enough to keep him in contention, and enough to keep the nomination in doubt until San Diego.
Jude Wanniski