Wall Street wanted Ronald Reagan. It got him.
The postelection euphoria the investment community experienced was expressed in a 16-point gain in the Dow Jones industrial average on Nov. w6.
But the elation was tempered quickly the next day by the serious economic and financial burdens that afflict the average consumer, businessman and investor.
The pundits will ponder interminably whether the Reagan sweep reflects a major conservative turn, the erosion of the two-party system or merely a weariness with President Carter and a wariness of four more years of his administration.
But there seems little doubt that businessmen and many voters believe a Reagan administration "will vigorously lead the way toward private-sector solutions and toward restoring private work and investment incentives via less government, less regulation and lower taxes," according to Albert H. Cox, a Reagan adviser and head of Merrill Lynch Economics Co.
The question, according to one Wall Street executive who supports Reagan strongly, is whether the president-elect can get a quick enough grip on the economy to maintain the confidence of both the business community that backed him and the citizens who elected him. For in the final years of the Carter administration, it was lack of confidence more than bad economic policies that ground the nation's nose into the economic grime.
The economic order that President-elect Reagan will inherit is in disarray: Inflation eats away not only at real incomes but, more importantly, at psyches. The capital-raising mechanism is in serious disorder. Investors are willing to chance $50 a share on an upstart company with no proven track record but are reluctant to buy a bond yielding 12 percent from a solid, established corporation.
Why? Many are convinced that in an inflationary environment it is better to speculate than to invest. Buy Genentech at $50 on the hope you can sell it to the next guy for $60. Buy commodities, stock options, gold, paintings, even rare wines. You stand a chance of making a killing. Investors seem willing to put their money everywhere but in the kinds of investments that give business the wherewithal to expand and modernize and create jobs.
Even real estate, the darling investment of the 1970s, is out of reach for most potential homeowners today with interest rates at 15 1/2 percent. But, just as investors are reluctant to buy a 30-year bond, even at record-high interest rates, so too are lenders reluctant to make long-term loans. While the outgoing president moaned about the visible prime rate increases, the sharp increases in interest rates on long-term funds and the growing reluctance of investors to make long-term commitments of any variety strike much more telling blows at the American social and economic fabric than high short-term rates.
In the coming weeks, if the Federal Reserve Board tightens its monetary policy as expected, interest rates are likely to shoot higher.
High interest rates, designed to fight inflation, could make it even worse. As Lawrence Kudlow, chief economist at Bear, Stearns Inc., points out, when an economy is recovering from a recession, productivity gains and increases in output are likely to have a favorable impact on the inflation rate. In a recession, declining output is likely to make inflation worse.
"President-elect Reagan is likely to start his term with the advantage of having the confidence of the business community, a confidence Carter spent three years trying to win," economists at Bache Halsey Stuart Shields Inc. say in a report. "Reagan's problem is to survive the inflationary expectations of both business and labor." Only if people believe there will be less inflation in the future will they "behave in less inflationary ways in the present -- avoiding anticipatory price increases and wage demands," they say.