As an investment advisor, I am frequently asked about the immediate direction of the securities markets, and my answer has been, and will no doubt continue to be, that no markets are safe in a Presidential election year, much less one that is being conducted while in a state of war. Markets abhor uncertainties, so how can any rational investor not be extremely nervous in the current whirlwind of uncertainties in every element of our economic and political life? However, aside from the constant threat of the uncontrollable surprises of war, there are some areas in which we have some semblance of control, primarily in the policy and political arenas. For example, even if you don’t worry about which of our enemies or other foreign leaders prefer Kerry over Bush, at least you should worry about how the securities markets would discount an apparent victory by Kerry in November, not a totally irrational notion. In addition, major issues of importance in economic policy are under deliberation, and the outcomes of these debates are far from benign. To name a few: tax policy, mainly the permanence of the Bush tax cuts; trade policy, and the avoidance of protectionist expediencies designed to stem the job outsourcing scare; monetary policy, primarily the avoidance of the threat of resurgent commodity inflation; the constant demagoguery over the size, causes, and impact of the budget deficit; and the incessant bashing of corporate leaders through such overkill as the Sarbanes-Oxley law, the subjecting of corporate governance to political processes, and other anti-competitive rules and regulations. Meanwhile, the Barney Franks of the world are lamenting that our problem is “too little government”, the new leader of his party provides a de facto “amen” with his policy priorities, and, guess what?—we have an apparently equally divided electorate. Protectionism and paternalism are losers, and “industrial policy”, in which resource allocation is determined by government, was discredited long ago, but what is missing is a loud and consistent message that properly identifies these failed strategies and aggressively advances the “opportunity society”. A big part of the responsibility for this message belongs to the Bush administration, and I’m sure the campaign will catch up, but a major responsibility also lies with business leaders, who seem as a group to be too much on the defensive, overly protective of their special interests, and prone to look to the administration for “cover” on these issues.
