Who’s the Best Candidate for the Brokerage Industry?

If stockbrokers were the only voters in the upcoming presidential election, President Bush would win by a landslide of approximately 77 percent of the votes; Senator Kerry would receive approximately 19 percent with 4 percent undecided. (Poll conducted via email courtesy of Select Information Exchange, Inc.) Does this indicate unequivocally that President Bush is the best candidate for the stock brokerage industry? The short term answer is yes. The long term answer is no one knows for sure. Here’s why:

George’s Iraq

Stability is one of the keys to a strong economy and a robust investment environment. The war against terrorism, and mainly the occupation of Iraq, will significantly affect the perceived stability of the United States and its standing in the Middle East. President George W. Bush has committed this country to what may be the watershed event in not just the war on terror, but the relationship that the United States will have with the Middle East and the rest of the world for most of this century. Re-electing President Bush will give him the mandate to have the United States carry out this tough task. Success would be an amazing feat for this country and the world. Anything less than success could lead to many different levels of disaster. Financially it could wreak havoc on the U.S. economy for years and cause a radical change in Middle East policy that may further upset stability in the region and thus the world.

John’s Iraq

Senator John F. Kerry, if elected, may feel it necessary to pull out of Iraq in order to have a chance of a second term in office. His presidency may be burdened with changing gears on several initiatives that might have temporary financial benefits for the country. In the short to medium term he may be able to stabilize the situation by avoiding it all together. In fact, a Kerry win may cause a psychological shift in the country, which may lead to a mini post- 9/11 renaissance for the United States. It is more likely that a premature pull-out from Iraq, however enticing it may be, will be filled with mixed emotions in this country: a sense of relief mired in feelings of failure.

George’s Wall Street

Tax codes have a tremendous influence on what kinds of investments are made. Getting rid of estate taxes and privatizing social security would be a bonanza for the brokerage industry and most definitely make President Bush a pro-Wall Street candidate. There are some potential troubles. It is becoming clear that President Bush has a spending problem. General common sense dictates that going deeper into debt is not a good thing. The wealthiest country in the world should be able to work out of cash-flow. There is definitely a Reagan influence there, and as it turned out, the country fared well under Reagan. What may seem like a lot of debt today may be considered a clever investment 10 years from now.

John’s Wall Street

Protect U.S. jobs. Spend less. Pull the reigns on Corporate America. Overseas outsourcing has been a fantastic cost-cutting technique for large and midsize corporations. This is not a recent phenomenon. It is a general migration which happens in every growing country. Is it happening faster than U.S. citizens can handle before they re-train for newer jobs? That is a little harder to tell. If Hollywood, which is mostly pro-Kerry, was taxed on outsourcing overseas, it would put a major damper on their overall profitability. The Lord of the Rings trilogy was the largest employer in New Zealand during their several years of production. Typically, Republicans seem better for Wall Street, but the most recent boom in the stock market was under President Clinton. Does Wall Street really do better under Republican leadership?

Bull markets of the twentieth century, and the presidents behind them

The Eisenhower (Republican) 1950s bull market and the Clinton (Democrat) 1990s bull market were equally great runs for Wall Street. The 1920s pre-crash bull market lead by Harding and then Hoover (both Republicans) was the largest increase in real terms compared to all other bull markets. Three bull markets in the 1930s produced gains of 100 percent even though the market remained below the 1929 high. They were all during Franklin Roosevelt’s (Democrat) terms in office. Republican or Democrat, bull markets are not wholly affiliated with either party.

Are bull markets more common during two-term presidencies? Sure, it’s a loaded question. Typically a president will get re-elected if the people are generally happy with the performance of the economy. If the economy is doing well — which very often has nothing to do with its current leaders — the majority of voters rightly want to keep the status quo. If President Bush gets re-elected, statistically we may be in for a nice turnaround in the economy and stock market. If he is re-elected it would mean that the country feels the economy is on track, however this is a wartime election and very often incumbents win wartime elections (e.g. Washington, Lincoln, Roosevelt, and Nixon) regardless of the economy.

Handling of the economy during bear markets is probably more important than who is in charge when the seas are calm. It is clear that neither party has a monopoly on boom times.

The worst bear market was the 1929-1932 (Republican) crash when overvalued stocks, economic crises in Europe, banking crises in the United States, reductions in international trade, and a lack of confidence led to three years of horrific declines. The 1929-1932 bear is followed in size by the 1937-1938 (Democrat), 1973-1974 (Republican) and 2000-2002 (Republican) bear markets, each of which declined by 45 to 50 percent. Other bear markets were shorter and shallower compared to those three major declines.

First prize, four years in office; second prize, eight years. With rising interest rates and growing debt, the burdens of either candidate will be felt throughout the economy. Unless there is a major success at home or abroad, four years may be a longer period of time than either President Bush or Senator Kerry realize.