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MARKET BEAT / TOM PETRUNO

As Clinton Moves, Some Stock Pros See Bear's Shadow

April 09, 1993|TOM PETRUNO

Wall Street knew that Bill Clinton would be an activist President. But as one after another of the market's great growth stocks go up in smoke, some money managers believe that they see Uncle Sam standing there holding the matchbook and gas can--grinning as the bull market flames up and out.

Medical stocks were the first casualty, and they have become the investment community's black hole, pending federal health care reform. Then came the Federal Communications Commission's decision to roll back cable TV rates, erasing 30% of major cable companies' market value overnight.

And last week, Philip Morris' stock collapsed after it decided to slash cigarette prices in the face of a virtually certain hike in federal tobacco taxes.

For some Wall Streeters, the destruction of these key stocks at the hands of the federal government is more than a little disturbing. It raises real questions about the bull market's longevity.

Jim Craig, manager of the Janus stock mutual fund in Denver, states his concerns succinctly: Clinton's camp "is not a friend of corporate profits," he says, "and Wall Street needs profits."

Certainly, that kind of talk has to be put in perspective. Money managers typically are Republicans. Most probably didn't vote for Clinton. And the personal views of many of these managers are out of touch with the views of the public, after 12 years of hands-off Reaganism. Tax cigarettes some more? Americans overwhelmingly say yes. Slap controls on health care costs? Ditto.

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What's more, it's tough to argue that the stock market as a whole is upset with Clinton. While some big names have been trashed, the Standard & Poor's 500-stock index is off just 3% from its peak. If Clinton has been a disaster for drug stocks, his pro-natural gas approach has bolstered those stocks. Likewise, the Administration's sympathetic attitude toward U.S. auto makers has helped the rally in those issues.

Even so, some Wall Streeters contend that were it not for short-term interest rates at 30-year lows--courtesy of the Federal Reserve--stocks would be much lower by now, on worries about the Administration's overall tone toward business. "When that prop of short-term interest rates is lost, I think the negative sentiment toward Clinton will be much more in evidence," warns Thomas D. Gallagher, political analyst for Shearson Lehman Bros. in Washington.

It would be nice, of course, to just ignore the concerns of the mostly Republican fund management camp. Unfortunately, Main Street's cash is in Wall Street's hands: With rising institutionalization of the market via mutual funds--concentrating power in the hands of a relatively few managers--not many minds need to be changed to spark an exodus from stocks.

Bill Nasgovitz, whose Heartland Funds in Milwaukee manage $300 million for mostly small investors, has built up a 15% cash cushion in his stock portfolios, the highest percentage since 1987, he says. Like many Wall Streeters, Nasgovitz last year bought into the idea that Democratic presidents have historically been better for his kind of stocks (smaller issues) than Republicans. But he's not so sure history will repeat.

"I still think small stocks are cheap," he says. "But you have to overlay that with what's going on in D.C." If investors assume companies have unlimited growth potential, Nasgovitz notes, the multiple of stock prices to earnings per share goes up and stays up. Add new taxes, regulation and general hostility toward business, however, and you naturally dampen growth prospects. "The more Washington enters into the picture, the lower the multiple on earnings is going to be," he says.

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At Palley-Needelman Asset Management in Newport Beach, portfolio manager Howard Gleicher has similar concerns. His cash cushion has also grown, and now is 20% of his multibillion-dollar portfolio. And while Gleicher believes that the market's greatest concern is simply historically high stock prices--rather than Clintonomics--he doesn't like the confrontational tone that Washington has set with business.

Let's give the new President a chance to work, Gleicher says. But he adds: "If Clinton's actions reflect his initial comments, you're going to see the stock market a hell of a lot lower."

Are these managers too hard on Clinton? Maybe. The unfortunate truth is that this 2 1/2-year-old bull market is aged, by historical standards. Odds are overwhelming that Clinton will preside over a bear market at some point in his four years, no matter what his policies. (Even Reagan had one, remember?) So the growing angst among money managers may reflect not so much Clinton's activism as the pros' knowledge that it would be time to start looking to sell regardless of who's renting the White House.

Federal Victims?

Here are some of the better-known stocks that have slumped this year because of a change in federal policy--or anticipation of such change. Also shown are the stocks' prices on the day Bill Clinton was elected.

Nov. 3 1993 Thurs. Stock price peak price Bristol-Myers 68 1/8 67 1/4 57 1/2 Comcast Corp. 14 3/8 25 1/4 17 3/4 Eli Lilly 63 1/8 62 46 Johnson & Johnson 49 3/4 50 3/8 38 1/2 Merck 44 44 1/8 33 1/8 Philip Morris 76 3/4 77 5/8 46 1/4 RJR Nabisco 8 3/4 9 1/4 6 Student Loan Marketing 67 3/4 75 1/4 44 3/4 Tele- Communications 16 3/4 25 1/2 17 3/4 Time Warner 24 3/8 37 1/4 32 1/4 Dow industrials 3,252.48 3,478.34 3,396.48 NASDAQ composite 604.58 708.85 666.33

All trade on NYSE except Tele-Communications and Comcast (NASDAQ).

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