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Politics : Electoral College 2000 - Ahead of the Curve -- Ignore unavailable to you. Want to Upgrade?

To: Ilaine who wrote (1997)	11/12/2000 3:36:54 PM
From: Raymond Duray	Respond to of 6710

Hi Cobalt, What do you think? Let's get started..... maybe there is some truth to the allegations that the Clinton administration was somehow propping up the markets to give Gore a hand. In the case of the oil market, there is no doubt whatsoever that the release of 30MM bbl from the SPR was politically motivated and a clear case of applying inappropriate relief, as far as product is concerned, but just the right medicine to bash some speculators who had been artificially holding up the spot market. As to the bond market, I see no indication whatsoever that Treasury is doing anything other than follow sound and prudent policy regarding the issuance and retirement of the bonded indebtedness of the country. I see scant evidence that the Administration is able to influence the corporate bond market, which is in a parlous state due to some distortions in judgement that had been allowed to creep into the system over the past few years. This market is way beyond the control of any one national government. As to the equity markets, there really isn't much of a direct and significant linkage between the Administration and the market. The government can have effects at the margins only. The SEC is the prime interface and their FD rules are too recent to be of much impact, decimalization is just barely starting. A vastly bigger development is the ECN phenomenon, which the government has very little supervisory effect on. It can reasonably be argued that DoJ is involved in equity valuations as the persecutor of the MSFT monopoly, and the FTC is involved in examinining the merger activities of major corporations. Since it is historically the case that at least as many mergers fail to create stockholder value as do, I'd say that the recent failure of the FTC to permit the merger of WCOM/FON is probably not a contributing factor to the long term pricing of those stocks, looked at over the longer term. Of course, there was momentary unwinding of arbitrage positions and some may see the government involved in driving these isolated equity prices down. This is a red herring. The telecom sector has much bigger problems than merely one broken deal. So what have I just said? I just said that the preponderance of evidence shows that the action of the Clinton administration is not, as you incorrectly perceive "somehow propping up the markets to give Gore a hand". In fact, the preponderance the evidence is that the actions of the Administration have been to suppress equity valuations. Ask big pharma, ask Phillip Morris, they don't think Clinton-Gore is propping them up. At the margins, the Clinton-Gore Administration are having a direct effect on the valuations of certain individual equities. Particularly those of companies involved in alternative energy solutions. Many companies are being spawned out of the national labs, like Sandia, LLNL, and Los Alamos, and there is a direct stimulative effect to commerce by the licensing of new technologies to commercial enterprise and the purchasing by the Federal government of services in the realm of basic science, research and development. I find this to be a salutory effect, but hardly significant in a $10 Trillion economy. So no matter who won, it was going down, and will continue to do so. The level of the stock market is most significantly affected by the rate of corporate profitability and the direction of change in that rate. We peaked in the rate of growth in corporate profit for this cycle in Q200. We are now decelerating and the stock market is being repriced to reflect the new reality. Should George Bush gain the advantage, we may have a muted relief rally. But it will be smaller, the longer we travel from Nov. 7. Because we are losing the window in which the rally could be created and sustained. Those who hope for a Santa Claus rally are going to be disappointed, IMHO, because the evidence I've seen shows that we will have a very strong warnings season. The uncertainty in the political process isn't helping, but the prime mover in the equity market is the unraveling of the Goldilocks economy of 1999. We'll look back at that year as the high water mark of this round of the business cycle. That's my story, and I'm stickin' to it. Until I see the Fed move, there is no force available to move the equity market higher beyond investor hope. And there seems to be a reasonable supply of that around. Put:Call is at 0.8, not a trigger point by a long shot, VIX is 32.5, historically on the high side, but not threatening. Gotta Go, Ray