Tabell’s Market Letter – July 31, 1981

Tabell’s Market Letter – July 31, 1981

Tabell's Market Letter - July 31, 1981
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TABELL'S MARKET LETTER 909 STATE ROAD, PRINCETON. NEW JERSEY 08540 DIYISION OF MEMBeR New YORK STOCK EXCHANGe, INC MEMSER AMERICAN STOCI( eXCHANGe … – .– ….. .,. . ….uly2!!–!98 . …,L There -eXists traditionally, in the minds -of most Americans ;-some soreoCtemiolls–relation- ship between the fortunes of Wall Street and those of the Republican Party. This image 'probably goes back to the days of Thomas Nast cartoons depicting bloated capitalists with dollar signs on their vests. There is at least some logical justification for the association in that Republicans have been called the party of business, and it is indeed undeniable that, over the long term, the overall level of business profits constitutes the basic determinant of securities prices. Nonethe- less, attempts to link Republican political fortunes to the level of the Dow Jones Industrial Average have, over most of the past century, foundered on the hard rock of statistical fac!. Somehow, the financial community conspicuously fsils to treat Republican successes with the elation that, subconsciously at least, many observers have come to expect. The truth of this particular axiom has been demonstrated once agsin over the past year. Mr. Reagan was nominated last July and elected last November. With the passage of his tax bill in both the House and Senate this week by larger-than-expected margins, coupled with Congress' prior acceptance-in-toto of his budget proposals, he has recorded a political success perhaps un- equaled since the fabled first hundred days of the Roosevelt administration in 1933. The stock market's total response to this phenomenon has been a yawn. On all three of the occasions mentioned above, the Dow Jones Industrial Average remained steadfastly in the low 900's. To those who believe that the market possesses some sort of collective wisdom, the inevitable corollary is that it is sending us some sort of message by its apparent total boredom with the present administration and all its works. Those of a bearish frame of mind, including the pur- veyors of disaster chic, are forced to the conclusion that the message being conveyed is that the administration's economic program, 3t simply, is not going to work. The gloom-and-doom theorists have never been able to any alternative an e\'(jr in 0Jtu.a. 'lIlU SO rnat It Jeaas -me',aau,.r to '. Tney . . a.r ,,,y of the middle ground that the Reagan program purports to offer. Smce most of these oaoao – presumably- emerged from their bomb shelters long enough to vote for Mr. Reagan last November, they must be at least mildly embarrassed at finding themselves in bed with such apostles of the old order as Walter Heller, who are equally vocal in assuring us that no middle ground exists. It has never been the view in this quarter that the market was a sort of Delphic Oracle with the ability to know things that the rest of us don't. Indeed when the market demonstrates such knowledge it is generally and reliably wrong. The last such demonstration of prescience that we can recall was the certainty in 1972 that earnings and prices for the nifty fifty were going to go on increasing forever and ever. Prior examples of the market's wisdom include the inevitability of a post-war depression in the late 1940's and the certainty of continuing prosperity in 1928- 29. With this background, we find ourselves singularly undisturbed by the apparent lack of enthusiasm for the Reagan program. Indeed, we should have found it a great deal more disturb- ing had the market greeted the President's arrival by going on one of its periodic tears and equating his accession with some sort of new version of the Second Coming. One can find ample historical precedent for the present torpor in the year following the election of both prior new Republican presidents. Both in 1952, following the election of General Eisenhower, and in 1968, following that of Mr. Nixon the market did nothing over most of the subsequent twelve months. In the case of Eisenhower, at least, it found itself just about having doubled by the end of his term. In contrast to any oracular quality, we think the market tends, at any given time to reflect the state of conventional wisdom, conventional wisdom that has only slowly and psinfully developed over long years of experience. Since the year-Old Reagan fiscal policy essentially represents a reversal of almost a half century of prevailing wisdom, it is far too early to expect the market to have developed any collective thinking on the subject whatsoever. The current conventional wisdom reflected by the equity market quite obviously centers not around politics but interest rates and the theory that these must in fact come down before stocks can be expected to go up. As is the case with most such widely-held views, we suspect this one may find itself rudely shattered in one way or another over the next few years. By that time, the market may have developed the view of the Reagan economic program which it now resolutely refuses to express. AWT rs ANTHONY W. TABELL DELAFIELD, HARVEY, TAB ELL – t Dow-Jones Industrial Average (1200 p.m.) 949.58 S & P Composite (12 00 p.m.) 130.61 Cumulative Index (7/30/81) 1142.77 No statement or eprenlon of OpiniOn or any other matter herein contomed IS, or IS 10 be deemed 10 be, dHectly or md,redly, on offer or the Ol,c,tollon of on offer to buy Or sell any secunty referred to or menlloned The matter IS presented merely for the convenlenc of the subsCriber While we believe the sources of our Informa tlon to be reliable, we In no way represent or guorontee the accuracy thereof nor of Ihc statements mode herein Any octlon to be loen by The subscriber should be bosed On hiS own Inves1tgatlon ond mformotlon Janney Montgomery Scott, Inc, as a corporation, and 1\ offICers or employees, may now hove, ar may later loe. positions or trades In respett to any securities mentIoned m thiS or any future Issue, ond such POSition may be different from any views now or hereafter eypressed JIl Ihl5 or any other 'Sue Janney Montgomery Scott. Inc, wh,ch rs reg.stered …. rln the SEC as on InVeStment advisor, may glllt! adVIce /a lis tn ..estment advI50ry ond othel L-ruom.,od.P.Od.OYOIOOy'-o'-.m-.omod.,oth,,o,, ooyoth.,,,,.F'th'Ofo'mot,oooOOOy,,ru,,,ymoOO'dh',OOObO ,,q.,, –,

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