SMELL THAT?

That's not May flowers or fermenting corn. That's a whiff of politics creasing noses on Wall Street. There's no mistaking the odor, as there are very few

or

in this zip code.

In case you missed it, Sen. Barack Obama (D., Ill.) was elected in the media precincts as the Democratic presidential nominee last week. Immediately after, a wake was held for the Republican Party in its current incarnation, Reagan high priestess Peggy Noonan presiding.

In her column in The Wall Street Journal Friday, Noonan quoted from a memo by Rep. Tom Davis (R., Va.), who warned party colleagues that they "fail to understand the deep-seated antipathy toward the president, the war, gas prices, the economy, foreclosures." For good measure, Davis told Noonan the GOP is "an airplane flying right into a mountain." The columnist concluded that her party has grown so complacent that it's all but doomed this fall pointing to the recent loss of a formerly safe House seat in Mississippi as a foretaste of the indignities to come.

And it's not just Noonan and Davis who can sense which way the wind is blowing. Our very own pundit, Donald Luskin, wrote Friday about the retreat of Reaganomics, which he blames on a "fat and happy" electorate. (The fat is indisputable, but as far as happy goes, all the polls and my growing gut tell me anything but.)

Don defines Reaganomics as perfectly sensible economic liberalism as well as "little regulation" and "sound money" which of course are the problematic parts. You can't have sound money if you borrow on a Reaganometric scale, and you can't have it if you keep cutting taxes and adding perks. And as much as Reagan's deregulation freed the economy from the dead hand of bureaucracy that Nixon imposed it's now come to be associated with tainted meat, uninspected and routinely delayed planes, Enron, WorldCom and no-money-down adjustable mortgages. The revolution brought a lot of used-car dealers to Washington and the ideology made it easy for them to let industry lobbyists write laws and gut regulatory agencies from the inside. And even the people who don't believe that's what went on have noticed that they're rowing against the tide.

In Sunday's Getting Going personal finance

on WSJ.com, Dave Kansas analyzed the implications of the coming election for investors, zeroing in on the risk of higher taxes on capital gains and dividends. The implication being, don't stand near the market exit if it starts looking like a Democratic rout.

What does any of this have to do with the price of diesel in New York Harbor? Well, I'm no Nostradamus, but it's not hard to envision a scenario in which McCain and Obama are running neck-and-neck come September in a battle of ideology, temperament and sensibilities that could further polarize the country. And in that scenario, those anticipating a wave of politically induced selling would be sorely tempted to jump the gun.

It's another reason to be wary of this rally, and to separate the market into wards of the state health-care stocks, financials, mall stores and the exporters who pay their own bills. In the end, this election will not turn on the tax rate for capital. Obama means to turn it into a referendum on whether we can continue to borrow in order to maintain an imperial military, while paying twice as much for health care as anyone else. McCain will hope for a referendum on patriotism and the flag instead.

I doubt the efficacy of almost every economic prescription Obama proposes. But his most potent argument will be that, economically, we can't afford more of the same. And, in the free market, that thesis has been working like a charm for a long time: Sell the country with the sharply deteriorating terms of trade and mounting fiscal problems, buy almost anything else, almost anywhere else.

This should be a trade that keeps on working right until the polls close in California, and probably beyond. The market values financial prudence and competent, fair regulation. The time to buy American will be when America figures this out.

Also See:

• It's Time to Get Mad About the Economy

• Global-Growth Bets Trump U.S. Consumers, Dollar

• The Hard Truth About Money