Go to PDF Version | Go to Recent Issues
To save time in the future, you may select one of the preferences below. You may update your eIBD preferences at any time by going into My IBD and selecting Update Your eIBD Preferences.
Set Web-Based Version as Default Set PDF Version as Default Set Recent Issues as Default
Get QuoteSearch Site
Daily Graphs Online
The Congress was working overtime last week, and it wasn't pretty. The awful spectacle of Congress' inability to timely resolve budgetary issues and raise our self-imposed debt cap took a heavy toll on the stock market. What is so profoundly disturbing is that in their brinksmanship, our lawmakers never seem to consider just how much their actions cost us.
It is bad enough that government views all assets and earnings as property of the government first, of which we are allowed to keep a portion by the grace of the government.
What is equally upsetting, but less visible, is the amount of wealth destroyed merely by political talk, even when that talk doesn't lead to action. This wealth destruction is the "Congressional Effect." It is empirically demonstrated by looking at how the stock market is affected on a daily basis by Congress.
From 1965 through 2010, measuring each of the 11,582 trading days during that period, the price of the S&P 500 Index rose at an annualized rate of less than 1% on days Congress was in session, but over 16% on days it was out of session. Over the past 10 years, as government has gotten bigger, this relationship has gotten more extreme.
From 2001 through 2010, on days it was out of session the market went up at an annualized rate of more than 12%, but went down at an annualized rate of -7% when it was in session. Last week's debt cap circus contributed mightily to a -4% decline in the market, and Congress was in every day.
The explanation is simple. Each congressman sees himself as an "issues entrepreneur" searching for the next "big thing."
But for him, the next "big thing" is not Google or Facebook, but rather, Medicare Part D, ethanol subsidies, Dodd-Frank or, especially, health care reform.
Every time one of these "big things" is floated as an idea, the market has to discount whether and how much the rules will change for a particular industry.
Some buyers wait for the final version of the new rules so they have more certainty about the business models of the companies before they buy. But sellers often have to sell for reasons having nothing to do with the latest news about an industry.
When there are disproportionately more sellers than buyers, you have periods of underperformance, which happens much more frequently when Congress is in session.
If Congress can't repeal the law that banishes the Edison light bulb and forces us to buy Chinese-made bulbs we don't like, voters will ask, what was the use in electing a Republican House? Not only are the majority of Americans in favor of abolishing that obnoxious law, but even a majority of ...
That thoughtful observer of the passing parade, Nancy Pelosi, weighed in on the "debt ceiling" negotiations the other day: "What we're trying to do is save the world from the Republican budget. We're trying to save life on this planet as we know it today." It's always good to have things explained ...
There's a burgeoning theme in Washington these days. Although not publicly stated before the cameras, the power brokers whisper it among themselves. But before too long — perhaps in the next six months as the presidential campaign heats up — we'll all recognize it when we hear it. It's ...
It is time for our nation's leaders to step back from the brink. Obviously, neither side wants to blink first in this "stare down." However, both sides must stop focusing on political brinkmanship and instead look our fiscal challenges straight in the eye. With the possible exception of a few House ...
Between 6 p.m. Friday and 4 p.m. Sunday, the nation began a constitutional course-correction. The current occupant's vanity and naivete — a dangerous amalgam — are causing the modern presidency to buckle beneath the weight of its pretenses. And Congress is reasserting its ...
Posted By: jpdwn(2530) on 8/1/2011 | 7:30 PM ET
America's future? Or preserve my future? OK, write of America and buy gold, foreign energy, foreign commodities. Then VOTE Democrat.
Posted By: concerned(3795) on 8/1/2011 | 7:29 PM ET
And now we have these idiots Biden and Doyle calling Tea Party Congressmen 'terrorists' for trying to restore fiscal sanity in the budget negotiations. Tomorrow ought to be an interesting day.
Posted By: Tom in Michigan(9070) on 8/1/2011 | 6:59 PM ET
When the issue of investment risk arises; I tell friends and family-and advisors-I consider the government the single greatest threat to our financial future-especially with Obamaviks in charge. I've gradually moved investments out of the stock market and overseas as well. I don't really see any way back from where we are today-heading down "the road to serfdom," led by a regime that thinks IT owns America's wealth with the right to dole it out, as it sees fit.
To participate in Community areas, please Sign In or Register
Register
Without exception, sell your stock if it drops 7% - 8% below your purchase price.
Get QuoteSearch Site
Read Full Article »
