The market needs a leader like Ronald Reagan

As a product of the Reagan revolution, watching the media coverage of the passing of Nancy Reagan left me sad and reminiscing about my youth. Most importantly, it reminded me of the dark days of Jimmy Carter and the light of economic hope which Ronald Reagan represented. Understand, during the Carter years with the marginal top tax rates at very high levels, unemployment a serious problem and interest rates running around 15 percent to 20 percent, the prospects for coming out of school and finding a job were dim at best. Capital preservation became the mantra.

Then came Reagan who cut all taxes, widened the base and freed up the needed seed capital which launched many of the great companies we trade this very day all with Soviet missiles aimed at us. It was a Godsend! I was 19 and proudly voted for the first time. It became governmental poetry in motion. It was a time when fiscal conservatives and progressive Democrats treated each other with respect (to a point), compromised for the sake of the country and the office of the presidency was dignified. The point is: That's how economies grow.

President Ronald Reagan in 1982.
Getty Images
President Ronald Reagan in 1982.

Fast forward to March of 2016. We are in the middle of the greatest global expansion anyone could have ever imagined led by American free market style capitalism which could take global equity markets to unimaginable levels in the next few years. This 'Global growth' phenomenon is witnessing international trade at levels never before seen and producing goods and services at a record pace.

So what seems to be the problem? Success. The adoption of our market driven system by the rest of the world also brings the ancillary effects of the boom and bust cycles. It's important to remember, as Dr. Milton Friedman, the Nobel laureate taught us, we in the U.S., are the beneficiaries of twin miracles; an economic miracle coupled with a political miracle. As a student of the markets and someone who had the privilege of meeting Dr. Friedman, I am convinced that the two are forever intertwined. That might seem like an obvious statement but let's take a closer look.

As the European Central Bank, Bank of Japan and the Federal Reserve begin the central-bank-a-thon this week, the markets seem to have found a certain sense of stability. Portfolio managers, who had put on the 'market deterioration' spread by selling S&P 500 and buying fixed income, found themselves in a crowded trade and the short covering was explosive. But as a long time bull, I believe it is time to address the lack of pro-growth policies which are needed for real expansion.

We can argue all we want about the job creation and the inflation data but the most important factor affecting the markets, aside from the Fed, is fiscal policy. To re-engineer that statement, imagine where the market would be under the Reagan years with this prolonged low interest rate scenario. The reality is that without the help of solid pro-growth fiscal stimulus, the central banks can only do so much. The economic cycle came and went without any help from Washington.

A re-pricing of assets is deep underway. Portfolio managers will still be sellers into strength for the foreseeable future led by the price of crude. A further collapse in crude prices (they could go to $20) will bring on the next wave of equity selling. Capital is being held hostage to the volatility in the crude oil market like it or not. Unfortunately, the 'all clear' for the market is ambiguous at best. Portfolios need to remain long but fully protected and flexible while we watch the energy and political dramas play out.

The next few months for the market can be treacherous for traders. If possible, use the volatility to your favor. The electoral process should be watched very closely for any hints of a true economic plan. Aside from building walls and checking private emails the office of the presidency, as shown by Ronald Reagan, can transform the country and lead it to it's true potential. Finding a way to repatriate trillions of dollars Corporate America has abroad with an established territorial tax along with true corporate tax reform at home should be in every candidate's agenda, Democrat or Republican. (Except Sanders for obvious socialist reasons!)

As the global leader in free market ideology, we must do something to attract capital and ignite global growth. To be honest, we are the only ones that can make it happen. When the U.S. coughs the rest of the world catches cold, when the U.S. smiles, the rest of the world becomes euphoric. Without a pro-growth message coming out of D.C. to the rest of the world, this economic malaise might be the new normal. With a REAL plan…Wow, can you say 30,000 Dow in a few years?

Every market must be repriced from time to time in order to maintain the "animal spirits." But let's keep in mind what is on the other side of the repricing of assets. As we start to find clarity in the race for the Oval Office (Unless Sanders is nominated) and we see crude stabilize later this year, corporate America will find itself in a strong position. Balance sheets as a whole are strong; and with a steady dollar, earnings could be a surprise later this year. The lower input costs and a resurgence of growth, both here and abroad, will trigger the next leg higher in stocks.

In many ways, it really is an I.O.U.: The market will owe us the next leg up after the clouds of uncertainty part. We could see another 10 to 20 percent lower in prices before we're all done, but the bottom will come and it will be the buy of the decade.

Commentary by Jack Bouroudjian, CEO of Index Futures Group LLC, a registered independent broker, and CIO of Index Capital Partners, a registered commodity-pool operator. He was also a three-term director of the Chicago Mercantile Exchange and founder and advisor of UCX (Universal Compute Exchange). Follow him on Twitter @JackBouroudjian.

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