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Get Four
|  | SEPTEMBER 28, 2004
One Vote for Kerry on Wall Street Citing Bush's record as the worst for stocks in 60 years, strategist Peter Cohan thinks the Democrat would be a better bet On the evidence of history, a President John Kerry might be better for the economy and the market than George W. Bush has been. Such is the view of Peter S. Cohan, author and president of Peter S. Cohan & Associates. Cohan compares data over the last 60 years and concludes that the overall economic performance -- and the stock market -- during this Bush Presidency have been the worst over that period, with the market down an average 5.2% a year. He attributes this to terrorism worries, the rising cost of energy, and the mounting budget deficits. In Cohan's opinion, Kerry would do better because he's using advisers from the Clinton Administration, a period when both the economy and the market did well. However, he has also developed what he calls the WIC index -- the W Industrial Complex Index, composed of stocks in the coal, oil, natural gas, refining, broadcasting, and retailing industries, many of which have done well under Bush. He mentions, for example, Valero Energy (VLO ), Arch Coal (ACI ), and Fox Entertainment Group (FOX ). These were a few of the points Cohan made in an investing chat presented Sept. 23 by BusinessWeek Online on America Online, in response to questions from the audience and from Jack Dierdorff and Karyn McCormack of BW Online. Edited excerpts follow. A complete transcript is available from BusinessWeek Online on AOL at keyword: BW Talk. Q: Peter, before we get into politics and the stock market, how do you see this waffling market? A: We have a significant slowdown going on now in the economy, which is also causing the market to take a hit. If you look at it from a longer-term perspective, over the course of the entire term of this particular President, comparing this Presidency to ones over the last 60 years, the overall economic performance -- over six criteria including GDP growth, unemployment, etc. -- has been worse than any over that time period. The stock market under the current President has had its worst performance in the last 60 years, down on average 5.2% a year. In my view, the reason for the relatively weak economy and stock market performance is the result of three taxes: the terror tax, the energy tax, and the debt tax.... The terror tax is what happens when you have a series of terror warnings issued by the government -- companies are so afraid of terror attacks that they're holding on to their cash instead of investing it and creating new jobs. The energy tax? Well, oil [prices have] increased 104%, coal is up 102%, natural gas up 71% since [Bush's] taking office. The third tax, the debt tax, is what happens when you borrow so much money that the government is bumping up against a $7.84 trillion debt ceiling. Finally, on average the consumer credit outstanding per consumer is $9,169. So with the Fed raising interest rates, interest expense is taking an ever-larger percent of consumer budgets. Q: Which President is best for our nation regarding stocks in general? A: Well, let's put it this way. Nobody really knows what the future brings, but one of the things I do is invest in private companies. I make bets on management teams and have had some good fortune over the years. What I'm thinking about is that we have a President with an abysmal stock market and economy record, and then another candidate who's being advised by some of those who helped build the best economy in the last 60 years (i.e., former Clinton advisers). So given the track record of the two, I'd feel more comfortable betting on the team with the good record. The other thing I'd point out is that some professors at UCLA have done an analysis on the stock market regarding Democratic vs. Republican officeholders. Democrats generated 11% over the Treasury bill rate, Republicans 2%. Q: Weren't the Clinton years a boom because of all the dot-coms going crazy and nothing to do with Democrats or Republicans? A: That's a good question. I personally believe that it's business executives who create jobs, not government, so really what you need to do if you're President is create an environment where executives want to grow their businesses and make investments. There were two phases in Clinton's Presidency. The early to mid-1990s saw companies using technology to cut costs and operate more efficiently. In the second term, Clinton got very focused on deficit reduction, and deficit reduction created lower long-term interest rates, which lowered the cost of capital. At the same time, the Internet came along, with the 1995 initial public offering of Netscape. That was sort of the match that lit the tinder of the low interest rates. When the market started responding positively to Internet-related IPOs, companies began to see the opportunities available. As they began to do that, it unleashed a tremendous amount of creativity, investment, startups that went public, and made it possible to invest in more companies. There were also a lot of capital gains that made it possible to further reduce the deficit, which saw big surpluses in the deficit and new jobs. So there was some luck, but there was also a great environment in which this all could happen. Q: Which candidate has a better plan for health care? I pay $900 per month for health insurance -- what will it cost me if Kerry wins? A: Quite frankly, I don't know how to compare the two candidates' health-care plans and what the impact will be under each one. I can say that under Bush, health-insurance premiums have gone up 49% over the last three years, with the average family paying $66 more a month than they did before. Obviously, you pay more. My point is, though, that under this Administration, premiums have gone up a tremendous amount. Also, the Census Bureau states that the average family's income has dropped 3% over the last four years. This dropping income, combined with higher premiums, is very bad news.
BW MALL
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