“Capital goes where it is made to feel welcome and stays where it is well-treated.” So goes the old saying, generally attributed to the great New York financier, Walter Wriston. Last week’s election results reconfirm that hypothesis. The Bush policy agenda — which includes lower marginal tax rates on entrepreneurs and significantly lower costs on capital returns such as capital gains and dividends — appears to be friendlier to the accumulation and growth of the country’s capital assets. Anybody who doubts this should closely re-examine their position in light of the recent electoral and stock market events:
‐ On Monday, November 1, the day before the election, it was widely believed, given the final round of polling, that President Bush was slightly more likely to win than the challenger. Not surprisingly, the Dow Jones Industrial Average registered a slight gain of 25 points.
‐ On Tuesday, November 2, Election Day itself, after an initial run-up in the opening hours of the market, news began to appear regarding exit polls which were played by most media outlets as favorable to John Kerry. Since exit polls are not designed to forecast election winners, and are rather cross-tabulation tools designed to determine the causes of elections and defeats after all the votes are counted, those early exit polls turned out to be very poor predictors indeed. The point here, however, is that from mid-morning on Tuesday to the end of the trading day, the only new information investors had available to discount into their decisions was unfavorable toward the president. They were looking at negative indicators from the exit polls as well as news of very high voter turnout, which was framed by most in the media as bad for the incumbent.
‐ Between the closing of the market on Tuesday and the opening of the market on Wednesday, the prospects for a Bush victory went up dramatically. Per the Bush-bounce theory, stock prices exploded out of the gate, sprinting upwards over 150 points on Wednesday. While those gains declined somewhat as the day wore on, the Dow nevertheless finished with a 101 point gain.
‐ The pattern held on day four as well. By Thursday, investors knew that Bush had won decisively, but did not yet know for certain that his second-term agenda would be growth-oriented and pro-capital. This meant that morning trading was characterized by slow and unsteady gains. However, during the president’s live press conference — in which he reaffirmed his commitment to broad ownership for Americans in the stock market (individual Social Security accounts) and a pro-growth business environment (tax reform and simplification) — the Dow once again skyrocketed. It hit its highest level in recent weeks and finished out the day with a 177 point gain.
In short, on Monday, when the received wisdom was that the president might win, the stock market showed small increases. On Tuesday, when the received wisdom looked as though the president would lose, the market saw significant decreases. On Wednesday, when it became clear that the president had indeed won the election, the market showed massive growth. On Thursday, when the president reaffirmed his intention to spend his political capital to help Americans enhance their financial capital, the markets responded with another day of strong gains.
President George W. Bush has wisely pledged to spend his political capital in his second term. In so doing, we believe he will advance the economic capital of the country, and as a true political entrepreneur, replenish and increase the political capital for himself and his party.
– Jerry Bowyer is the author of The Bush Boom and an economic advisor to Blue Vase Capital Management. He can be reached through www.BowyerMedia.com.