Wary investment urged in Clinton-era climate

Andrew Leckey

January 13, 1993|By Andrew Leckey | Andrew Leckey,Tribune Media Services

Take your time, don't look for quick fixes and don't go overboard.

That's the cautious advice from investment strategists as President-elect Bill Clinton jogs his way into the White House.

Favorably impressed with Clinton's popularity and his politically moderate Cabinet choices, they nonetheless fret that he may come up with some "worst case scenario" economic solutions, as they believe some other Democrats have in the past.

The ambitious nature of a few Clinton economic goals may be tempered quickly.

For example, promises to create jobs and improve investment to revitalize the economy may be slowed by a $4 trillion federal debt that's growing at a faster pace than the economy.

Despite the deficit, jobs should remain the new president's top priority, asserts Al Frank, editor of the Prudent Speculator investment letter. Economic stimulation should be mild in order to help recovery along, but not push it into an inflationary boom period.

"While we want Clinton to try to reduce the deficit from the word 'go,' we don't want him to do this at the expense of a strong recovery," explains Frank, whose newsletter in Santa Monica, Calif., posted a model portfolio gain of 57 percent in 1991 and better than 25 percent in 1992.

"A strong recovery, after all, will reduce the deficit through enhanced tax collections because more people will be working and fewer people will be receiving unemployment benefits."

Long-range planning is crucial.

"When dealing with the challenges of the economy and government, Clinton should take a long-term view of three to five years, rather than three to five months," advises Marshall Acuff, portfolio strategist for Smith Barney, Harris Upham & Co.

"He should encourage a tax credit on new investments, particularly those using domestically produced equipment, and should sit down with bank regulators and bank executives to urge them to be more aggressive in making new loans."

Taxes will play a big role, but not all tax tinkering is positive.

"Any economic stimulus should include an investment tax credit for corporations, for capital spending and for the first-time investor," suggests Eric Miller, chief investment officer for Donaldson, Lufkin & Jenrette.

"Instituting a middle-class tax cut, however, would be a major mistake that sends the wrong signal, because Clinton instead should be asking for broadly shared long-term sacrifice to help bring the budget deficit under control."

All three experts believe 1993 under Clinton offers some investment potential.

"The stock market will have a positive year, especially the first part, though there should be a 10 to 20 percent correction after the first quarter," predicts Frank. "I expect the 30-year bond rate [yield] to fall 1/2 of a percent to 1 percent during the year, while short-term rates should stay about where they are."

The rate of growth in gross domestic product should push 4 percent, rather than the 3 to 3.5 percent most people expect, Frank says. Inflation should remain under control at least another six to 12 months.

"The best I believe we can hope for the Dow Jones industrial average is that it stays in a trading zone, as it did last year," says Acuff, who thinks historically high valuations mean there aren't a lot of stock values. "I see short-term interest rates rising 1 to 1.5 percent, while long-term rates could be somewhat lower than today."

In the first half of 1993, the economy will trend below the traditional long-term growth rate of 3 percent, he predicts. It should improve in the second half and into 1994.

"Stay diversified and stay with quality whether you're investing in equity or debt, and realize that some of the larger middle-capitalization companies look more attractive," says Acuff. "I can look at a McDonald's Corp., May Department Stores or Hewlett-Packard and say they're just as cheap as many small-capitalization stocks of decent quality."

Municipal bonds look good, according to Miller.

"For the high-income investor, municipal bonds are more attractive than taxable bonds because tax rates are likely to go higher," says Miller, who prefers government bonds with maturities of four to 10 years.

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