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The Facts About Market Performance In A "Split Congress" Scenario
For some ungodly reason, various so-called sophisticated investors still peg their hopes that gridlock in Congress/Senate will be good for stocks. Of course, never before has gridlock been the primary force preventing a new multi-trillion fiscal stimulus which is ultimately what is needed to provide the economy with a fresh sugar high (of course it won't do anything for the economy in the long run, but we will let you read Krugman for that) and as such the current situation is unlike anything else in history (and is why America's last resort for a short-term bounce continues to be the Fed and its monetary policy). Yet for all the technical pundits, here is a bit of trivia via Art Cashin's letter today, which confirms that in a split Congress regime stocks perform worse than when either party was in control. "The worst stock performance came under a split Congress (up +6.2% per year) regardless of which party was in command of the White House."
From Art Cashin:
Good Gridlock Versus Bad Gridlock – Our friend, Barry Habib, over at Mortgage Market Guide passed along this fascinating piece of data:
"STOCKS AND POLITICS - In the last 50 years (1960-2009), the S&P 500 has been up +21.3% per year (total return) under a Democrat President and a Republican-led Congress, triple the +7.1% annual return achieved under a Republican President and a Congress controlled by Democrats. The stock index gained +10.7% per year when the White House and Congress was run by the same political party. The worst stock performance came under a split Congress (up +6.2% per year) regardless of which party was in command of the White House. The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the US stock market (source: BTN Research)."
Since, at this moment, polls indicate a “split Congress” is a likely election result, it may be a drag on equities. It will be another bit of financial folklore to watch.
And this being Art, we also learn about the latest developments in solar flares:
Spots Remain Spotty….And Then – Our ham radio pal mastered his computer and extracted the latest sunspot data. For October 7th through the 13th, the sunspot numbers were: 0, 11, 12, 13, 11, 11 and 24. That’s a pretty meager set of numbers and does not bode well as winter moves into the northern hemisphere.
Before we could get to the sweater drawer, another friend sent us a flash from NASA on a rapidly growing sunspot (1112) that emerged after October 14th. Here’s NASA’s somewhat breathless description:
"Fast-growing sunspot 1112 is crackling with solar flares. The three strongest of this 24 hour period: an M3-flare at 1910 UT on Oct. 16th, a C1-flare at 0900 UT and another C1-flare at 1740 UT on Oct. 17th. So far, none of the blasts has hurled a substantial CME toward Earth.
In addition, a vast filament of magnetism is cutting across the sun's southern hemisphere, measuring about 400,000 km. A bright 'hot spot' just north of the filament's midpoint is UV radiation from sunspot 1112. The proximity is no coincidence; the filament appears to be rooted in the sunspot below. If the sunspot flares, it could cause the entire structure to erupt. But so far, none of the flares has destabilized the filament."
We’ll try to stay on top of the flare/filament situation to see if it may pose problems for the Earth’s atmosphere. And you thought currency wars were all you had to worry about.
And the obligatory, must-read history lesson:
On this day in 1973, the President of the United States faced a dilemma. He had determined that demands by the Special Prosecutor threatened the Executive Branch. So he decided to fire Archibald Cox. But to make it constitutionally neat the firing should come from someone in the "legal" column in the Executive Branch.
So Nixon started making phone calls, starting at the cabinet level. But like a guy without a car on prom night he kept getting "no thank you" for an answer. And saying "no thank you" to the president is usually followed with "I respectfully resign." Out went Elliot Richardson, Wm. Ruckelshaus and four others. Finally, he came to the Solicitor General, an acknowledged legal scholar, law professor and expert on the Constitution.
The Solicitor General said such a firing would be legal under the constitution and if it kept up all night the government of the U.S. might collapse. So he, rather unenthusiastically fired Archibald Cox. That Solicitor General's name was Robert Heron Bork and no one knows whatever became of him.
To celebrate stop by The Court of Last Resort and have a couple of split decisions with a twist. But even if it's "happy hour" don't order a "Country on the Rocks". It could give you a terrible hangover.
The bulls awoke to a painful global hangover as China declared a surprise rate hike; demonstrations in France turned to riots and Apple gave a rather downbeat forecast for the balance of the year.
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great that this article is looking ahead to the next congress...but the lame duck will be critically important.
keep this in mind: there are 3 senate seats in this cycle that are special elections. that means the senators who win those races will be seated during the lame duck session. imagine the fireworks of O'Donnell being seated, making the Maine Senators obsolete for breaking filibusters.
also remember that in this lame duck we have all manner of tax issues (death tax, bush tax cuts) and even a continuing resolution that NEEDS to be passed by Dec 3rd or we'll have a government shutdown.
"imagine the fireworks of O'Donnell being seated?"
Then the fraud cycle would be complete. The Sheeple begin the march to orderly extermination.
Irrelevant. The congress could be split until the cows come home, but they are united in their belief that the madman at the Fed will be allowed to continue his destruction of the middle class.
+1913, couldn't have said it better myself. We are living under BANKSTER RULES now.
Yes, and to prove election irrelevancy, the fed will making an announcement on Tuesday, Nov 3, aka Quantitative Easing Day.
Bingo! Sit down, shut up and open wide.
demonstrations in France turned to riots
Couldn't happen here. We got the Tea Party marching behind the Stars and Stripes in tricorn hats, wigs and cutaway coats and the lefties marching behind Mexican flags in urban casual and Birkenstocks.
Art is the man! And ZH is the web site! But this talk about gridlock in Congress is as silly as Bill Miller predicting 10% stock gains.
If, as thoughtful people believe, we really are in uncharted waters, making comparisons to previous elections makes no sense. Just as pointing to many historical arguments about stocks and bonds makes no sense.
Sometimes the hardest part of being an observer, (whether its financial markets or politics,) is that there really are no clear-cut answers. Right now, people inside the Beltway think they know what's going to happen because that's what they get paid for. THEY DON'T.
For a trade I'd say that if the Republicans take the House there will be a rally in the SPX, but I'd sell it just as all rallies must be sold.
Key Republican leaders are already sounding cautious about what they'll do if they're in the majority. For instance, there is talk that "earmarks" as we know them will NOT be allowed.
The bottom line is this market is like no other in history. The Fed is buying everything in sight. The Chinese are not the Japanese, so we can't assume that our major lender will keep supporting the insane federal spending Obama, Pelosi and Reid have been advocating. The best, the only, hope we have is that the Republicans take the House. But what they do when they get there is any one's bet.
Trying to get any legislation of significance past Obamatron's veto pen is gonna be difficult, hence gridlock in the main entree on the menu for 2011.
And by the way, that elephant in the room, is leaving huge piles of dung all around.
But not to worry,
http://www.elephantdungpaper.com/fact.html
Face it ... it's all about Bernanke. My wonder is will the new congress reign in the mad man.
When even their paper fails to buy a good hooker.
uh....I think we're a little too far into the end-game for that shit to matter one iota.
the system is debauched in its entirety. gov't will be lucky to survive at all.
One of the great myths of this country is that one political party is more friendly to Wall Street than the other.
6.2% per year? So S&P at 1330 in two years? That's a bad scenario?
Then again, a loaf of bread will be $1300 at that point.
At some point it is no longer about what is good for your portfolio, rather it is about what is good for the people and the country.
Having said that, Congress is for all intents and purposes irrelevant, much like the Roman Senate ... the government has become the executive branch and the bureaucracy that staff and run the thousands of agencies. Elections might have an influence on the former, but the latter are a perpetual motion machine that have set out on their own course of destruction, kind of like the machines the Army is devloping that fuel themselves off the various carbon-based elements they find lying around on the battlefield, the things that these machines are designed to kill.
Thanks for taking the time to discuss this, I feel strongly about it and love learning more on this topic.
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