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Willisms

« Trivia Tidbit Of The Day: Part 394 -- The 2006 Elections. | WILLisms.com | Social Security Reform Thursday: Week Sixty-Seven -- Two Percent Is Bigger Than It Sounds. »

Trivia Tidbit Of The Day: Part 395 -- Congress Harms America's Economy.

Stock Market Strategies-

Here's some advice for those investing in stocks. First, some historical background, courtesy of a fascinating paper published by the University of Cincinatti's Michael F. Ferguson and the University of Missouri's Hugh Douglas Witte (found via The Club For Growth's blog).

Flash back to 1897, the beginning of the Dow Jones Industrial Average. Put a dollar in an indexed portfolio with an even distribution of stocks from each DJIA component:

january1897.gif

Pretend dividends and transaction fees don't exist. Over the next 100+ years (summer of 2000), only invest while Congress is in session. Take the money out and sit on it while Congress is out of session.

Here's what you would have ended up with:

insessionportfolio.gif

Two bucks.

Okay, now let's look at the opposite. Only invest while Congress is out of session. Cash out when Congress is in session.

Here's what you would have earned, by the year 2000:

outofsessionportfolio.gif

Two-hundred sixteen bucks. And a dime.

Amazing, but somehow pretty much intuitive. Wall Street likes stability and predictability. Capitol Hill, filled with so many unstable, unpredictable personalities, usually likes tinkering for the sake of tinkering.

From the Ferguson/Witte paper:

annualizedreturns.jpg

Astounding. "The stock market" subscribes to the "poly-ticks" postulate of political opinion, which holds that the etymology of "politics" is actually "many + blood sucking parasites."

Indeed, just after the Civil War, Judge Gideon J. Tucker of New York noted:

"No man’s life, liberty or property are safe while Congress is in session."

Even popular Congresses are feared and loathed by Wall Street, although the market saw its best gains when an unpopular Congress was out of session.

By the way, the latest Congressional approval rating sits at 32%, with almost no ambivalence in the remaining 68%. Fully 62% of Americans disapprove of our new Marxist overlords on Capitol Hill. Sure, this is a mild improvement from a couple of months ago, but starting out so low is not a good sign for the Democrats.

However, this low Congressional approval may be a good sign for out-of-session investing. Unfortunately, Congress may be in session far more than usual this year, so there may not be many chances for out-of-session investing.

Meanwhile, back in Austin, Texas, the state legislature meets in 2007 for its first regular session since 2005, as Texas' booming economy and population growth both continue to outpace the strong national economy and population growth overall.

Other states-- mostly of the "red" variety-- share Texas' infrequent legislative schedule and enjoy similar results. Fewer, shorter legislative sessions are abhorred by those who would like to see "more results" from their elected representatives and by those who directly depend on active legislatures for their livelihoods, but shorter sessions are the ultimate term limit. These session-shortening rules, typically mandated by state constitutions, are a built-in pro-growth provision that gives "term-limited" states a leg up in the competition for commerce, industry, and people.

America's Founders crafted a limited government, because they understood that a big government leviathan was the greatest threat to liberty. Once upon a time, our nation's limited government propelled commerce and industry with the basics: the building of infrastructure; the stabilization of national defense; the administration of justice.

Somewhere along the line, Congress injected itself into uncritical minutiae (such as Major League Baseball steroid scandals), all while taking over ever-more of the critical functions of human existence (food, clothing, shelter, medicine). It's no wonder that the "out of session" portfolio really only diverged from the "in session" portfolio following World War I, at about the same time Congress drastically expanded its purview into societal affairs.

As stock market results prove over the past 100 years, the American engine of commerce prefers the Founding vision of narrow, specific government to the Poly Ticks vision of a perpetually meeting, eternally involved legislature.

-------------------------------------

Previous Trivia Tidbit: 2006 Election.

Posted by Will Franklin · 11 January 2007 03:28 PM

Comments

Now those are some amazing statistics. Any breakhdown as to control by the two parties, and by mixed Congresses (where each party controls one house)?

Posted by: Bigfoot at January 11, 2007 08:21 PM

I think the idea originally was to send the clowns from each state to Washington, where they would be out of our hair and do less harm. As the rights of states have eroded, the plan has backfired.

Posted by: Assistant Village Idiot at January 11, 2007 08:59 PM

Criminy, Will! Of course, you realize that we could something similar for the S&P 500. You wouldn't happen to have the source for the dates when Congress hasn't been in session since 1900? (or maybe 1871?)

Posted by: Ironman at January 11, 2007 10:36 PM