Money Managers Size Up Clinton, Wax Optimistic

SAN FRANCISCO —  Five hundred money managers and financial advisers have converged here this week, all looking for an answer to the Big Question: How will Bill Clinton shape investment trends over the next four years?

This particular group, meeting under the aegis of the second annual National Financial Adviser Conference sponsored by discount brokerage Charles Schwab & Co., includes many independent money managers and small advisers who are beholden only to their clients--not to some mega-financial organization.

In that sense these are people who have to think for themselves, and who have the most to gain, or lose, depending on how well they structure their clients’ portfolios for the economy the President-elect will now orchestrate.

Perhaps not surprisingly, there is hardly a feeling of jubilation over Clinton’s ascendance. Money managers have never been big supporters of the Democratic Party, after all, because the Democrats have long been viewed as capital destroyers instead of capital builders.

Yet in their comments and questions, many of these small money managers betray an underlying optimism that Clinton’s rise could mark the start of an economic renaissance for the nation, with the stock market the natural beneficiary. More important, the clients of these advisers seem willing to give Clinton the benefit of the doubt.

George R. Pierce, a Seattle-based independent investment adviser who says he has 700 clients, says many of them peppered him before the election with “a lot of questions about what the market was going to do.” Yet not one of those clients wanted to make any changes in their portfolios, he says.

To Pierce and other small money managers, the smartest route Clinton could take to get the economy moving again--and get Americans excited about investing in the economy again, directly or indirectly--would be to change the tax structure so that people are better rewarded for taking risk. That means new-business investment incentives and/or capital gains tax cuts.

“You have to make it easier for smaller companies like mine to hire people,” Pierce says, noting that job creation in America has become almost exclusively the domain of small businesses, as major corporations continue to slash their work forces.

Schwab & Co. founder Charles Schwab echoed the sentiments of many people at the conference when he charged that “the capital gains tax is mislabeled. It isn’t a tax on capital gains, it’s a tax on job creation.”

This may sound like the same old Republican grousing by investors who want capital gains taxes lifted just so they can trade stocks like mad, bagging all the profit while Uncle Sam gets nothing.

But in fact, one characteristic of independent money managers is that they tend to be long-term investors. Indeed, many of them are former stock brokers who started their own money-management businesses so that they could get away from the account-churning, commission-burning way of life that major brokerages still encourage.

One speaker here Thursday, former BankAmerica economist and current Hoover Institution research fellow Walter Hoadley, suggested that Clinton may surprise investors by being very amenable to rewarding business incentive even beyond the expanded investment tax credits he has already proposed.

Hoadley contends that Clinton was elected precisely because “his emphasis is on (boosting) investment rather than consumption.”

For the public to support such a candidate “is a major, major change,” Hoadley says. It suggests, he adds, “that the public is ready to do a little sacrificing” of individual short-term good for long-term societal prosperity.

Look at it this way, Hoadley says: The $20 billion extra each year that Clinton wants to spend on infrastructure improvements is peanuts in a $6-trillion economy. Yet there are mountains of capital out there that individuals and companies would be willing to invest if the government provided greater incentive to do so.

Right now, that money is simply stuck within the system, Hoadley argues. “Clinton has to get rid of that blockage,” he says.

Of course, George Bush couldn’t persuade Congress to cut the capital gains tax or do much else to inspire new-business investment. Those proposals, coming from a Republican, always seemed to sound like handouts for the wealthy.

Coming from Democrat Clinton, however, they could be a much easier sell to a public clearly in a mood for change.

Post-Election Stocks: Usually, a Honeymoon

Despite some worries on Wall Street about Bill Clinton’s election, in the near term, history is on the bulls’ side: Since 1952, the stock market has always risen in the fourth quarter of a presidential election year.

S&P; 500 Year President’s Party 4th Qtr. Gain 1952 Republican +8.3% 1956 Republican +2.9% 1960 Democrat +8.6% 1964 Democrat +0.7% 1968 Republican +1.2% 1972 Republican +6.8% 1976 Democrat +2.1% 1980 Republican +8.2% 1984 Republican +0.7% 1988 Republican +2.1%

Source: The Hirsch Organization