On Wall Street the money men are jangling their pieces of eight nervously in their pockets, casting a wary eye southward toward Washington, worrying about what the politicians will do next. Apart from the jangling pockets, the atmosphere here is strikingly similar to that in Washington, where the politicians are looking nervously northward toward the financial district.
Wall Street is disappointed in the latest moves by the Reagan administration and angry at suggestions from Washington politicians that the financiers here are somehow to blame for high interest rates and big budget deficits. Those financiers seem optimistic about the long-term economic future but also frightened by uncertain short-term prospects and scared that the new Republican administration may not know how to manage the transition from today's uncertainty to tomorrow's boom.
In the last few weeks, many Wall Street people have remembered why they preferred John Connally or George Bush as Republican candidates last year -- because they were conventional Republicans. The Reagan administration is composed of "all Democrats who got rich," as Sam I. Nakagama of Kidder, Peabody put it -- joking, but not really joking. Economic policymakers in this administration include some "rather exotic people," Nakagama said more seriously, people "who have very extreme views."
But some of the people Nakagama considers "exotic" consider him and his colleagues here to be crucial members of the audience for the new administration. David Stockman, for example, principal author of the Reagan economic recovery program, has said flatly that the program will fail if Wall Street does not respond positively to it. Said Stockman last May: "If we can't turn the financial markets around, then we can't succeed."
Normally the relationship between Wall Street and Washington has all the emotional intimacy of a turnpike driver's relationship to an automatic toll collector. Financiers look askance at politicians, who return the look and often add a glare. But periodically the two groups are thrown closer together than they like, forced into direct intercourse by events. This is such a moment.
Though Wall Street's researchers keep voluminous records showing the relationships of different kinds of economic trends, interest rates and stock and bond prices, there is no chart to predict Washington-Wall Street interaction. Sometimes Wall Street booms even as it disapproves sternly of what's going on in Washington (the '60s are a classic example). Sometimes Wall Street collapses when its favorite Republican presidents are conducting policies which it applauds.
Recently the markets have been collapsing while a Republican president that Wall Street would like to love has been sticking with economic policies the financiers thought they would like. This is a new wrinkle in an old story.
Conversations here this week with nearly a dozen Wall Streeters of all kinds reveal a predictable range of opinions on the Reagan administration, but virtual unanimity on the short-term future for financial markets. They will be volatile and uncertain for a long time to come, the players here say.
One private investor who has made at least $15 million over the last dozen years said he expected a rally in the markets soon, since Washington now has caught on to the markets' difficulties. "Washington is always the last to know," this man said, "so if Washington sees we're in trouble now, the trouble is probably just about over."
Such hunches are not universal. Robert Sinche, chief economist for Bear, Stearns, predicted budget deficits of $120 billion to $140 billion in fiscal 1983 and 1984 unless there are huge new cuts in federal spending. Reagan, said Sinche, is right to emphasize that his program is a long-term effort that can't produce quick results, because that is correct.
Eric Miller, chairman of the investment committee at Donaldson, Lufkin & Jenrette, said: "It's a very edgy period." He added:
"The way the Reagan program has failed, obviously, is that it didn't impact attitudes. . . . Inflationary expectations did not change."
Basically, said Donald B. Marron, president of Paine-Webber, people with money now prefer to "lend it at variable rates i.e., by investing in money-market funds, which now have assets of about $150 billion . . . than to invest it in anything" with a fixed value like a stock or bond.
Wall Street is buzzing with political talk this week, largely because politicians like Sen. Howard H. Baker Jr. (R-Tenn.) and Rep. Robert H. Michel (R-Ill.) attacked the financiers last week as irresponsible, as though persistent high interest rates were their fault. This was not appreciated.
But the political talk is a varied as it might be among Washingtonians. Some here are aggressively sympathetic to the Reagan administration, among them Willard C. Butcher, chairman of the Chase Manhattan Bank. Others, like Nakagama of Kidder, Peabody, don't disguise their grave doubts about the competence of the new government.
Many say they don't want to be quoted publicly, but they are scared by the thought that Reagan and his men don't know what they are doing. According to one man here, "there is a lot of pressure in the big firms not to be too critical of Reagan in public," on the grounds that he is a probusiness Republican president, even if his policies worry financiers.
The most common topic of conversation this week has been Reagan's decision not to significantly cut the defense budget. "It isn't a cut at all," said Marron of Paine Webber. "We really did expect the spending cuts to match the tax cuts," he added.
The suggestion that Wall Street causes high interest rates or volatile markets annoys people here. Marron of Paine-Webber said emphatically there there is no such thing as Wall Street -- that the important marginal decisions to buy or sell stocks or bonds are now often made by sheiks in the Middle East or financiers in Zurich and London who are acting on their own hunches and beliefs without regard for any opinions held in New York. These foreigners "are just watching our performance [of the American economy] and deciding whether they want to buy more tickets," Marron said. The tickets, of course, are American stocks and bonds, and dollars.
Many on Wall Street are angry with the Reagan administration for adopting the venerable Washington tradition of making overly optimistic economic predictions. Last winter's rosy projections from the new administration were no better than Jimmy Carter's, said one Wall Streeter who invests millions for pension funds. "Once again," this man said, "the government has confirmed Wall Street's suspicion that it is incapable of being honest."
Financiers here do not agree on who to blame for the state of the financial and stock markets. Some say high interest rates are actually a good thing, because they are holding down consumer spending, thus allowing a diversion of resources to the defense budget and reduced taxes. Others say the interest rates are normal, given the Federal Reserve Board's apparently successful efforts to control the growth of the money supply and the federal government's continuing need to raise large amounts of capital in the marketplace.
Herman Sandler, a limited partner of Bear, Stearns who invests money for regional banks, said bluntly that the administration should learn the lesson of Switzerland and Japan, countries where interest rates are held down by deliberate government policy. "There is no free market in interest rates," Sandler said bluntly. But others talk of a free market in worshipful tones.
While these debates continue, the fundamental reality of Wall Street life remains unchanged: Whatever their long-term dreams or expectations, financiers here are all but totally preoccupied by day-to-day developments. As Miller of Donaldson, Lufkin put it, the key decisions on Wall Street are made by people "who are measured on immediate performance" -- in other words, on short-term results. "They can't hang everything on hopes for a bright future," he said.