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Strategies & Market Trends : The Thread Formerly Known as No Rest For The Wicked -- Ignore unavailable to you. Want to Upgrade?

To: Glenn who wrote (3423)	12/20/1998 4:31:00 PM
From: Glenn	Read Replies (1) \| Respond to of 90042

December 20, 1998 -------------------------------------------------------------------------------- Impeachment Could Squelch Investor Optimism, Say Analysts By JOSEPH REBELLO Dow Jones Newswires WASHINGTON -- As House Republicans moved toward making President Clinton only the second president to be impeached, U.S. investors took comfort in another part of his legacy: the longest peacetime economic expansion in the country's history. But on Monday, many analysts say, investors are likely to get nervous about the outlook for that expansion. They predict that as pressures build on Mr. Clinton to resign rather than face a Senate trial, investors will shift their focus from the still-robust economy to the uncertainties of the post-impeachment era. "Markets hate uncertainty," said John Williams, an economist with Bankers Trust in New York. "When you walk down a road that hasn't been traveled in 130 years, I think its unwarranted for investors to take a cavalier attitude." He and other analysts said the U.S. stock market could dip Monday in reaction to Mr. Clinton's impeachment. The drop could be as large as 100 points, said M. Cary Leahey, an economist with Primark Decision Economics in New York. Investors so far have shrugged off the impeachment proceedings, delighting instead in an economy that has expanded at a solid 3.5% rate this year despite a world-wide economic crisis. In a recent survey of individual investors by Ropers Starch Worldwide, four out of five respondents said Mr. Clinton's impeachment would not be a good reason to take their money out of the stock market. "We're still seeing this huge commitment by individual investors to the stock market for long-term retirement purposes," said David Jones, chief economist with Aubrey Lanston & Co. in New York. "That liquidity provides a strong underpinning for the markets." Key market indexes, including the Dow Jones Industrial Average and the Standard & Poor's 500-stock index, rose last week as Mr. Clinton's impeachment became inevitable. Those indexes are close to record highs. And most economists say investors generally have good reason to be confident: the U.S. economy is likely to slow in 1999, but recession isn't in the danger it was in October, when a credit crunch squeezed financial markets around the world. Growth forecasts for 1999 range from 1.5% to 2.5%. But analysts say Mr. Clinton's impeachment, and the extraordinary political vitriol that has accompanied it, adds a wild-card element to an economic climate that is already clouded by uncertainties related to the global economic downturn. "This process has been like a Chinese water torture," said Mr. Leahey, of Primark Decision Economics. "The water is dropping every day, and you don't know when the markets will scream." Mr. Clinton has vowed not to resign, but analysts say the impeachment proceedings have been so bitter and unpredictable that resignation can't be ruled out. On Saturday, House Speaker-elect Robert Livingston announced he would not serve as speaker and would resign in six months. Many economists said the deepening political rancor in Washington has increased the odds that economic policy making -- particularly on matters affecting the budget -- will be stymied in 1999. "The poisonous partisanship that we've seen in Washington will create some uncertainties next year, and that will exert a downward pressure on stocks," said Mr. Jones of Aubrey Lanston. As a trial begins in the Senate, analysts said, the greatest uncertainty for investors will involve policy makers rather than policies. Mr. Clinton owes much of his economic legacy to his willingness to give free rein to two key policy makers: Federal Reserve Chairman Alan Greenspan and Treasury Secretary Robert Rubin. "There's been a perfect political backdrop for the economic expansion -- a passive political backdrop," Mr. Jones said. Mr. Greenspan is expected to seek another term as chairman when his current term expires in 2000. But Mr. Rubin is another matter. Analysts say he has played the same stabilizing role in Mr. Clinton's cabinet that Henry Kissinger played as secretary of state when President Nixon faced impeachment in 1974. But Mr. Rubin has been dogged by rumors for much of this year that he is waiting for an opportune moment to resign. Mr. Rubin has repeatedly denied resignation rumors. "The market treats Rubin as an independent operator who doesn't really need the president," Mr. Leahey said. But he said investors will get worried about Mr. Rubin's intentions as Mr. Clinton becomes preoccupied with defending himself in the Senate. "If there were some sense that he was going to resign soon, or if he said something like 'Look, I can't get things done because I can't get through to the White House," the markets would be in trouble," Mr. Leahey said.