Which Candidate Will Get the Bull-Market Vote?

The recent bickering between presidential candidates over introducing equities into the Social Security mix is quite likely not the last investor-related issue we’ll be hearing about in the presidential campaign. It’s easy to imagine that both candidates will aggressively seek the endorsement of our recently missing but still widely popular old friend, the Greatest Bull Market of All Time.

Whom does GBMOAT prefer? How will GBMOAT make its feelings known? It’s difficult to say. However, the early money would seem to be on George Bush as the more market-friendly candidate, because he is a laissez-faire, government-minimizing kind of guy, and good old GBMOAT would simply be more comfortable with his administration.

But actually, there is an interesting counterargument to this, drawn to my attention by a faithful Moneybox reader. First, note that the current wisdom is that the GBMOAT has been driven into hiding lately because of “fears over rising interest rates.” The Federal Reserve, itself driven by fear of inflation, is seen as targeting the markets directly, determined to crank up the rates until share prices collapse. The villain is a vaguely defined creature generally referred to as the “wealth effect,” which is making people feel richer than they are, so they spend more than they should and the economy overheats. (Alan Greenspan, of course, has denied that he is targeting share prices, but his denials have been largely ignored, and his saintlike status has suffered–see a previous column on this phenomenon.)

So consider this. Over the weekend, published a Q & A with Morgan Stanley market strategist Byron Wien, a widely respected figure even if he is often more pessimistic than some of the GBMOAT’s cheerleaders would prefer. Toward the end of a long and wide-ranging interview, Wien was asked a run-of-the-mill Bush-or-Gore type question. “Bush believes that we should cut taxes drastically,” Wien replied.

We already have an overheated economy. If the Republicans were to take the House and Bush were to advance his tax-cut proposal, which is $700 billion over five years, it would heat up the economy to a fever pitch and the Fed would really have to tighten, so I think that would be really bad.

Now, in fairness, Wien also said offhandedly and without specifics that “Gore has some spending proposals that I think are very ill conceived.” So let’s just say he stopped short of an endorsement there. In fact, his bottom line was that

the best government is the government that does nothing, where the president is of one party and the Congress of another, so nothing gets through. That’s what we’ve enjoyed in the Clinton administration, so that’s why we’re experiencing this great prosperity. So, the best outcome would be a Republican House and a Democrat president or vice versa.

So there.

Still, his line of thought on Bush is intriguing: Tax cuts would fuel the wealth effect and force the Fed to keep beating on the market–and that would be bad for Main Street. And remember that at least as important as whether this is really true is the question of whether enough traders would think that it’s true. Something worth pondering for anyone who is courting the GBMOAT.

Photographs on the Slate Table of Contents of: Al Gore by Larry Downing/Reuters; George W. Bush by Jim Bourg/Reuters.