Washington Woes Rattle Markets
It's an investor adage that financial markets hate uncertainty. That could soon be tested if President Clinton is impeached by the House and required to stand trial in the Senate.
Some market analysts argue that Wall Street has already come through the worst global economic crisis in 50 years, turmoil that has left nearly half the globe in recession, and will hold up against the uncertainties of a Senate impeachment trial.
But other analysts are clearly worried, and they believe Wall Street, like the rest of the country, is just waking up to the threat.
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Treasury Secretary Robert Rubin refused Wedneday to speculate on what might happen to the stock market if Mr. Clinton were impeached.
"As far as the underlying economy, which is in the long run what drives markets ... I think the most likely scenario is still to look forward to solid growth and low inflation," Rubin said.
Officials held meetings at the Treasury on Tuesday "talking about the (economy's) prospects going forward," Rubin told reporters.
While the Dow Jones industrial average staged a solid rally on Tuesday, the 128-point gain came after five straight days of losses that many economists attributed in part to impeachment jitters.
"Impeachment for only the second time in our history and what that will mean for how the government is run has markets worried," said Allen Sinai, chief global economist at Primark Decision Economics in New York.
While many observers believe there aren't enough votes in the Senate to convict Mr. Clinton and remove him from office if the House votes to impeach him this wek, the threat is that a Senate trial could paralyze the government."The worst thing we could have is four months of debate and trial in the Senate ... because of the uncertainty it would present," said Sung Won Sohn, chief economist at Wells Fargo & Co. in Minneapolis.
Paul Kasriel, chief economist at Northern Trust Co. in Chicago, said the biggest worries would likely be among foreign investors, who represent a growing share of U.S. stock and bond holdings.
If they became concerned and started pulling their money out, that could spell trouble for stock prices and U.S. interest rates as well as the strength of the dollar.
But many analysts insist that any market upheavals are likely to be temporary. Even if Mr. Clinton were removed from office, markets would soon stabilize once they saw that Vice President Al Gore intended to follow the same policies and keep the same economic team.
"If there is no change in economic advisers with a change from Clinton to Gore, and it doesn't set us on a new economic course, I am not sure there is much economic uncertainty there," said Robert Brusca, economist at Nikko Securities in New York.
These analysts argue that even if Mr. Clinton is forced from office, financial markets would quickly stabilize as long as two key policy-makers Rubin and Federal Reserve Chairman Alan Greenspan remain at their posts.
Rubin, who is held in high regard on Wall Street, has been rumored for months to be leaving the administration. But last week he forcefully denied a rumor that he would be gone by year's end, calling the report "totally, absolutely and 100 percent erroneous."
But to buttress their arguments that impeachment spells bad news for markets, analysts point to developments during Watergate 25 years ago.
The situations are not exactly parallel. The Clinton fight is occurring during one of the longest bull markets in history. The Nixon battle occurred during two years when stock prices took a beating as soaring global oil prices pushed the U.S. economy into a recession.
But some analysts blame the oil price increase on Nixon's besieged presidency. And they warn that something similar could occur this time around.
"In the fall of 1973, when Mr. Nixon was starting to get into trouble, to me it was no accident that OPEC chose that moment to quadruple oil prices," said Nicholas Perna, economist for Fleet Financial Group in Hartford, Conn. "That is the kind of action that takes place when someone, somewhere, thinks we are vulnerable."
written By Martin Crustinger, AP Economics Writer