A Bush Win May Mean Bad-News Bonds

Click here for the latest from James J. Cramer.

It's pretty silly when we are rooting for gridlock in Washington. Except when you consider the wonderful bounty that gridlock has brought the stock market. The inability of the Democratic president to accomplish much of anything major on spending produced this fantastic combination of debt repayment and budget surpluses.

Now that era looks like it is over. Everybody's Republican. Which means that spending gets stimulated, taxes get cut and we have, once again, a competitive bond market. Those of you who just started trading in the last four years don't know what a powerful foe the bond market can be to rising equities. Bonds are the competition. And when they yield north of 7%, they are the competition that many money managers love. Not to mention what happens to the short-term rates if we stimulate spending too much. Then you can have cash yielding north of 7%. Considering how rocky this market has been, that's not too shabby a return.

That's what I worry about now that the U.S. government will be run solely by the Republicans -- barring an eleventh-hour Gore win in Flordia, that is. The bargain that the Congress and the president made with the Federal Reserve -- the one that allowed the Fed to be benign because Clinton did not overstimulate the economy -- now hangs in the balance. That's not good news.

Look for bonds to be back on the radar screen once again, as they were under George W. Bush's father. We may like Bush's pro-business sensibility, but we won't like his competition for the money that would have headed into stocks. That fact of life is just beginning to dawn on the investment community. It isn't a happy thought.

---

James J. Cramer is manager of a hedge fund and co-founder of TheStreet.com. At time of publication, his fund held no positions in any of the stocks mentioned. His fund often buys and sells securities that are the subject of his columns, both before and after the columns are published, and the positions that his fund takes may change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Cramer's writings provide insights into the dynamics of money management and are not a solicitation for transactions. While he cannot provide investment advice or recommendations, he invites you to send comments on his column to James J. Cramer .