Editor's Letter: The Clinton Corollary
By Dave Kansas
Editor-in-Chief
The Bill Clinton debate is front-page news, but the stock market has
already made up its mind: Clinton will stay.
Regardless of how you feel about politics, Ken Starr, the presidency or
anything related to this particularly graphic tale, people with money have
sent the stock market up about 350 points in the two sessions since word of
the report leaked out. Why? No news. Tawdry and salacious, the Starr report
failed to offer what the market feared: a surprise. The White House, so
irked at Starr leaks, did a masterful job of dribbling out every last
detail ahead of the report. Thus, when the report came out, no shockers
were evident. That's just what investors wanted to see.
Setting aside any analysis or personal feelings, and staring coldly at the
numbers, it is clear that those with the dough have already reached their
verdict. Most definitely the Washington media will keep this story alive as
long as they can, and congressional leaders will publicly fret about what
to do. But investors ought to keep their eye on the ball, focusing on
issues related to the economy, a possible Fed easing and concerted efforts
by policymakers to contain the global financial problems.
Moreover, since it is now clear to investors that Clinton will likely stay
in office, they are focused on what will make that possible. Clinton knows
that high approval ratings are his best defense, and the best way to
maintain those approval levels is to keep the investing world happy.
Clinton underscored the new reality Monday, declaring that the U.S. would
support all moves to help Latin America deal with its market troubles. It's
the Clinton corollary to the Monroe Doctrine, and that ought to help the
stock market, and the financial stocks most of all.
As you'll recall from my column in early August about searching for a
bottom, a clear resolution on Clinton's status was an important element of
finding the bottom. Other pieces that have fallen into place include the
recent surge in Intel (INTC:Nasdaq), a weakening in bonds (as investors
move from Treasuries back into stocks) and greater fear about the financial
markets. We've seen that fear in the form of Greenspan's surprising
declaration that the Fed might need to ease rates to maintain stability in
the financial markets, and we've seen that fear in the form of articles in
magazines like The Economist in which experts discuss the possibilities of
global financial meltdown reminiscent of the 1930s. That's fear!
Still, not everything has fallen into place. Despite recent flickers of
hope that Japan might be moving in the right direction, the fact remains
that Japan isn't doing much to improve its languishing economy. And without
Japan, it's tough for the Asian economies to pull out of their current
miserable situation.
Are we ready to launch right back into the bull market? It's tough to see
how that's possible, given Japan's situation and the still-powerful
economic and financial market problems in Asia, Latin America and Russia.
Moreover, preannouncements are likely to keep the bulls in check until we
see earnings news coming out in October. The likelihood of a 3M (MMM:NYSE)
earnings warning, according to Morgan Stanley, underscores that global
problems are not going to go away quickly.
But the determination that Clinton will stay, and the realization that he
sees the stock market as the one vehicle to assure his position, has helped
bolster confidence that the bear is going to have a hard time carving
deeper into our flesh.
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