Market Selloff
Jude Wanniski
July 11, 1996


We believe Wall Street’s sharp decline today -- with the NASDAQ high tech stocks in a dizzy spin -- is all in the political risks associated with presidential politics. That is, we really can’t make the case that the market is worried about the Fed. Nor can we attribute the slide to poor earnings reports. The market, rather, is seeing the increased risk of a Clinton re-election and a Democratic Congress. A second Clinton term would not be a problem as much as there being an absence of a check on a Democratic government that would make another run at health care reforms and continue the tax reform gridlock. Our myriad sources on the GOP grapevine in Washington now report a gathering sense of panic about the prospect for a three-way race among Clinton, Dole and Ross Perot or Richard Lamm producing savage GOP losses in Congress. Several dozen conservative lobbyists and opinion leaders met privately Wednesday morning in Washington and emerged devoid of any hope that the Dole candidacy would be even at least good enough to limit GOP losses elsewhere. 

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. Ross Perot’s performance on "Larry King Live" last night did not help, as he seemed to be closing the door to a draft movement behind Jack Kemp. There is much more to the story of what’s going on inside the Reform Party, however. The Perot people have been shocked at the establishment media’s elevation of Lamm, who always has been seen as merely an ice-breaker to bring in other, more likely contestants from “the best and the brightest,” as Perot has been saying. Clearly, both the Republican and Democratic political establishment has an interest in seeing Perot marginalized, with Lamm the candidate. Perot at least checked that maneuver last night. But unless Kemp -- who is the only player still standing who represents equity rather than debt (stocks over bonds, risk-taking over security) there will be almost no pressure left on the political chessboard from that corner. The Bill Clinton who would like to be John F. Kennedy needs such pressure or the Bill Clinton who prefers Teddy Kennedy will be dominant. It now would appear that all three entrants in the presidential sweepstakes will be competing for the honor of representing economic security over economic growth. If that were to hold true, we would see a much more serious sell-off on Wall Street, but there remains ample time for the growth forces to make some moves. Going into the August conventions, it will be roller-coaster time on Wall Street, so strap on your seat belts. As in Star Wars and Independence Day, the forces of darkness only get blown away at the last minute.

[Correction: In our piece sent yesterday, Clinton Vs. Dole Vs. Perot, we wrote that neither John Sears nor Mark Nuttle, two of the best political chessplayers we know at the presidential level, believe that Dole “can’t win” that three-way race. It should have read neither of them believe he can win such a contest. From what we hear, this is also the view of most Republican congressional leaders, whose strategies are now aimed at conceding Clinton the White House if only they can hold on to either House or Senate.]