WASHINGTON, June 11 (UPI) -- Make no mistake, a major reason for Wall Street's rally from June 2 to June 10 was the passing of Ronald Reagan -- the president under whom the Dow-Jones average began its brisk march from 1,000 up to 12,000 in the year 2000.
This is not an irrational or purely emotional response. Reagan's passing places America's great progress over 20 years, and future potential, in perspective and relief. There may be even more to it than that.
After all, America's current president, George Bush, is a self-proclaimed admirer -- part of a generation of young activists inspired to enter politics during the Reagan Revolution. He may be re-elected, and may continue to enjoy continued support in Congress, for what Bush says will be a continuation of Reagan policies in 2005-2008.
The caveat, of course, is that these prospects for a Reagan continuation -- and thus, a continued "Reagan rally" -- rely on the present and the future. Not just whether Bush wins -- but whether he, in fact, carries on something like a Reagan presidency.
THE REAGAN ACTION GAP
The most important Bush signal to the financial markets in recent days, interestingly, has involved social issues. These might not seem to be important to the stock market, but indirectly they are. Bush's political base, and his margin in such must-win states as Florida, Arakansas, and Louisiana, depend on keeping his social-issues core not only satisfied, but enthusiastic. More critically, his behavior reveals much about his character and political skill.
Here, the immediate signal is positive. Despite the obvious strength of Nancy Reagan's emotional appeal on behalf of controversial stem-cell research, President Bush, according to his own First Lady, plans to stand firm on his policy. This is, politically, what Ronald Reagan would do, standing firm, but with generous and moderate rhetoric, on a matter of principal.
This tactful declination of Mrs. Reagan, however, shows only that Mr. Bush is good at not backing down from a position he's already, in a sense, dug in on. This was already known.
And the key dynamic issue on which Bush's opposition is making progress is gay marriage. Here, Bush has been relatively quiet -- much to the discomfit of supporters. "We are losing a revolutionary battle in Massachusetts," a social-issues leader friendly to Bush remarks, "and President Bush has mobilized no support, and not even commented strongly."
This points to matters more directly on the minds of Bush's treatment of emerging, continuing, and dynamic issues: principally, the economy and Iraq.
On economic policy, too, Mr. Bush has Reaganesquely not backed down. His recent campaign commercial, at last, points to positive economic developments -- though ending with a blast at Senator John Kerry, continuing the un-Reaganlike negativity rather than talking about present results and future initiatives.
Indeed, Bush's economic message now mostly closely resembles that of Gerald Ford and his father, George H.W. Bush. Both presidents ran for re-election at a time of economic growth. Both lost, and felt that their problem, as the "Cool Hand Luke" warden puts it, was a "failure to communicate."
The present Mr. Bush doesn't plan to repeat that mistake, so he and his spokesmen are multiplying their message about how nicely the economy is turning. This was most visibly seen during an exculsive, and cogent interview that Vice President Richard Cheney gave to CNBC economics guru Lawrence Kudlow.
The new focus on cheerleading, many on Wall Street say, is fine, but the focus is wrong. "We read the jobs statistics," groans a Morgan-Stanley broker. "We also read the federal budget, and Alan Greenspan's jawboning."
Message: Markets, as always, are concerned less with spin than with action. Will the Bush Admnistration find some spending bills to veto in the coming months? Will it prod the Federal Reserve to raise interest rates -- and not tentatively, and later, but soon, and by 50 basis points now, and 100 by the end of the year? These are open questions.
The gap between Bush and Reagan is not one of rhetoric. Often called "the great communicator," as if his success relied mainly on giving good speeches, Mr. Reagan was in fact -- like all great executives, including Mr. Bush after 9/11 -- a man of action. This is perhaps most clear on the matter that will determine Bush's re-election, his presidency, and the direction of the stock markets in coming months: Iraq.
"It's the war, stupid," comments Jeffrey Bell, author of "Populism and Elitism" and a respected advisor to and observer of Ronald Reagan, paralleling James Carville's 1992 "economy, stupid" rallying cry for Bill Clinton. "If the Bush people have any doubt about that, they should look at 2002." Indeed, despite the relatively dismal economic outlook at the time, Mr. Bush's party made 1934-like gains in Congress -- much to the frustration of Democrats.
The best news for Mr. Bush is the assertiveness of Iraqi leaders. The country seems ready for democracy -- something Mr. Bush, more than any of his advisors, seems to sense.
Iraq's top political leaders elected their own president and prime minister, pre-empting advice from U.S. and United Nations "experts." Opinion polls want the U.S. to get out -- but in order to hasten Iraqi democracy. Local elections, insofar as they've been held, show Iraqis want more free elections in their future, not rule by unelected mullahs and thugs.
Unfortunately for markets, Mr. Bush has taken little action to reinforce these harbingers. Indeed, the Administration's approach has not been to consider moving elections forward, but to announce more speeches on the tentative signs that Bush is right -- and "the people of Iraq" are capable of self-rule. If not now, when? If not Mr. Bush to say so, who?
(The reason cited for this is the security situation, of course. But the security situation would be improved if there were elections and political debates going on all over the place. In their absence, how is an Iraqi to influence events? Demonstrably, in recent months, his best bet is to pick up a gun and take a Western hostage, or fire on U.S. troops.)
What would Ronald Reagan do? From the air-traffic controller strike to the launch of his strategic-defense program, to the economic sanctions after martial law was declared in Poland, and on through his anti-Soviet but later pro-Gorbachev effort to democratize the Soviet Union -- Reagan showed that, at such inflection points, what he would do is, take action. Most and at times all his advisors were worried, even opposed.
As time goes on, U.S. authority to command or even encourage faster Iraqi elections will recede. Which is why the coming days, for markets and Mr. Bush, are likely to prove decisive. Absent such moves to remove the "Western-chosen" bullseye target from the back of Iraq's interim leaders, September and October are likely to prove bloody months for Baghdad, and Bush.
BOTTOM LINE
In the coming months, world markets are likely to move in response in proportion as Mr. Bush closes, or fails to close, this action gap against Reaganism -- indeed, against the early years of Bush's own presidency. They will, in return, reflect and affect the likelihood of a Bush re-election; a mutual positive and negative synergistic feeback.
Will Bush veto a spending bill, activate his social-issues constituency, encourage Alan Greenspan to tighten? Will he -- most important -- go against the conventional wisdom that there is "nothing he can do" to advance democracy in Iraq, much as Reagan did vis-a-vis the Soviet Union?
The odds, and recent indicators, seem to suggest no. Hence, "bottom line" is ready to cover if Mr. Bush's Reagan Gap is closed -- but for now, short.
Gregory Fossedal manages international investement research for Emerging Markets Group in Washington, DC. His clients may (and usually do) hold long and short positions in many of the investment securities and opportunities mentioned in his reports. "The Bottom Line" is compiled from sources we believe to be reliable, but no representation is made that they are necessarily accurate or complete. Investors should perform their own due diligence and consult their own professional advisor before buying or selling any securities. Mr. Fossedal's opinions are entirely his own, and are not necessarily those of UPI or EMG. Futhermore, they are subject to change without notice.
