"rick++" <rick303[at]hotmail.com> wrote
- quote -

Shiller S&P 500 data:
Reagan-Bush, 1981-1992 = factor of 3.12 increase
Clinton, 1993-2000 = factor of 3.42 increase

In 2000, Clinton's final year of office, the NASDAQ crashed
from 4000 to 2500. I do not write all this as a criticism of
Mr. Clinton or any of the recent Presidents. Instead, it's
to point out that IMO you are making a distinction without a
difference. After all, the so-called "Clinton golden-age" is
also known as the age of "irrational exuberance." Having
voted for Mr. Clinton twice, I hope my comments above might
be viewed as an attempt to be honest, rather than plug a
political party. If you want to talk problems with budget
deficits or national debt, then that's something we might
hang on a President and/or Congress. But when it comes to
the stock market, most of the blame or credit belongs to
investors, AFAIC.

Folks should contemplate long-term trends, and not invest
based on short-term guesses re Congress or the Presidency.

Elizabeth Richardson wrote:
- quote -

I think there's a fundamental flaw in all of this -- assuming that who's
in office has that much to do with how the economy does, or how the
stock market performs. It's a factor but to me a very small one. As much
as the Clinton administration might want credit for that bull market, or
W might want credit for 2003's huge returns, I don't think the executive
branch was much of a factor in either. And not because it was just
creditable to a predecessor administration (e.g. the Reaganite's "peace
dividend" argument for the 90's bull market). It's just so much more
complicated than "who was in office?"

To me that's the huge flaw of the original "gridlock" premise, it
ignores the time separation between policies and outcomes. The study is
looking at alignment between Congress & prez, and the concurrent stock
market returns. Even assuming that federal legislation could have these
kinds of overwhelming effects on our huge economy & stock market, isn't
it likely these effects will show up only much later? Sure some things
could be priced by the market quickly ("Canada imposes new tax scheme on
royalty trusts"). But for most, it could take years for the effects to
materialize. And by then who could sort out what the real cause was?
Nixon decided to open up relations with China, 30 years later we have
Wal-mart. Should we credit Wal-mart's growth to those years? Or do you
just look at whether the stock market went up that year and assume that
built into stock values were accurately predictions about Wal-mart's
rise years later? It's kind of an absurd premise.

I think it's silly to look at the elections and predict what might
happen to the economy or market or worse, change financial plans based
on that. I see this all as "data mining" on par with the Super Bowl
Indicator. Thank goodness politicians don't have that kind of effect on
the market! But in a way they do, if you bother to change your plans
because of election hype.

-Tad

- quote -


So, you don't think the 2001-03 bear is due to the irrational exuberance of
the Clinton era? Most would. We were on or way to a recession before he left
office.

Elizabeth Richardson

- quote -

Clinton up 450%. Reagan up 250%. Bush H. up 50%. Bush W. down 20%.

"rick++" <rick303[at]hotmail.com> wrote
- quote -

I will. Many people lost all sense in the latter part of
those years and became nothing more than gamblers and
numerologists. With the corrections of 2000-2001, the less
educated became cynical about investing in stocks
altogether.

Individuals need to study the long term when considering
investing in stocks.

- quote -

Barely.

I wont weep if the "Clinton golden age" returned.
The stock market increased like 450% those 8 years.
Better than Reagan or the Bushes.

In the short term mid-term elections are generally positive
and the following years not as good.

Franklin Jefferson wrote:
- quote -

<snip
- quote -

A recent paper comes to a different conclusion.

http://www.cfapubs.org/doi/abs/10.2469/faj.v62.n5.4280
Gridlock's Gone, Now What?
Financial Analysts Journal
Scott B. Beyer, CFA, Gerald R. Jensen, CFA, and Robert R. Johnson, CFA
September/October 2006, Vol. 62, No. 5: 21-28
Abstract
This article examines the relationship between security returns and
"political gridlock," which occurs when the U.S. House of
Representatives, Senate, and presidency are not controlled by the same
political party. The findings support the following conclusions: First,
the common view that equities prosper during political gridlock is a
myth. Second, fixed-income securities do prosper during gridlock.
Third, large companies exhibit higher returns than small companies
during gridlock. Finally, the relationship between gridlock and
security returns is independent of monetary conditions; this finding
supports the existence of a unique "gridlock effect." Overall,
political conditions are relevant for investors, but previous views
about their influence are misguided.

Another recent paper finds that stock returns are lower and more
volatile when Congress is in session.

http://papers.ssrn.com/sol3/papers.c...ract_id=687211
Congress and the Stock Market
MICHAEL F. FERGUSON
University of Cincinnati - Department of Finance - Real Estate
HUGH DOUGLAS WITTE
University of Missouri at Columbia - Department of Finance March 13,
2006
Abstract:
We find a strong link between Congressional activity and stock market
returns that persists even after controlling for known daily return
anomalies. Stock returns are lower and volatility is higher when
Congress is in session. This "Congressional Effect" can be quite
large - more than 90% of the capital gains over the life of the DJIA
have come on days when Congress is out of session. The Effect varies
systematically with the public's opinion of Congress: returns are lower
and volatility higher when a relatively unpopular Congress is active.
Public opinion appears to play a fundamental role in market prices.
This is consistent with a mood-based explanation that sees Congress as
'depressing' the average investor. Alternatively, our results can
also be reconciled with rational explanations that view Congressional
activity as a proxy for regulatory uncertainty or rent-seeking
behavior.
Keywords: stock market, Congress, anomalies, behavioral finance
JEL Classifications: G1, G10, G14, G18

I can reproduce the difference in stock market return conclusion (it's
just a matter of averaging), but when I do the statistics, I can't
reproduce conclusion that the result is statisticaly insignificant.

For one thing, any time somebody phrases a statistical test in terms of
the chance that the result is real, this is a flag that they're a
little fuzzy about statistics-- in fact, a statistical test can never
answers that question. It only answers a slightly different question,
"what is the probability that this result could have been achieved by
chance?"

So, let's do the statistics. The hypothesis is:
"The stock market performs better in years when the government is
gridlocked."
This is a plausible a-prior hypothesis; I've heard many people suggest
that the economy does better if the government is gridlocked.
The null hypothesis is thus:
"The stock market does not perform better in years when the government
is gridlocked.:

So, the statistical test needs to answer the question, given the
standard deviations measured, what is the probability that the null
hypothesis would reproduce the difference in performance? Now, for the
data:

Gridlocked years: Xave(g)=14.08%, N=32, sigma=17.46, sigma/SQRT(N)=3.09
Non-gridlocked years: Xave(n)=10.67%, N=19, sigma=18.55,
sigma/SQRT(N)=4.36

So, in fact, the averages of the distribution are just around one sigma
apart. The rule of thumb is going to say that this is right at the
edge of significance, but to get real numbers, this is a job for
Student's t test. Skipping details (wikipedia has a decent article if
you want details; http://en.wikipedia.org/wiki/Student%27s_t-test ), I
calculate a t value of 0.67. Flipping to a table of the
t-distribution, degrees of freedom = 49, t=0.67 comes out at just about
76%

So, there's a one in four chance that this result would have come out
of a random distribution. Is 76% significant? Your call. It would
take another 150 years of data (assuming no change in the averages, or
in sigma) to bump this up to 85%, so this is pretty much as good data
as you're going to get, in this lifetime.

joetaxpayer wrote:
- quote -

--
Franklin Jefferson
***My blog: Jefferson's Democracy***
http://franklinjefferson.blogspot.com

On Sat, 4 Nov 2006 07:47:53 -0600, joetaxpayer
<joetaxpayer[at]nospam.com> wrote:


- quote -

Thanks. That one got by me.


-HW "Skip" Weldon
Columbia, SC

Mark Bole wrote:
- quote -


However, that's good instructions. VOTE.

--
Franklin Jefferson
***My blog: Jefferson's Democracy***
http://franklinjefferson.blogspot.com

Franklin Jefferson wrote:
- quote -

What's more significant to me is this; the JFP article

http://www.fpanet.org/journal/articl...p0804-art2.cfm
(I'll spare the group's need to use "the Google")

concludes, "When we take these factors into account, [the use of few
data points with data of such high standard deviation] the best we can
say is that there's a 52 percent chance the difference in return we see
is real as opposed to being a random occurrence." Why do you come to a
different conclusion than the source article you cite?
(also I removed the crosspost - surprised that slipped through)
JOE
JoeTaxpayer.com

Tad Borek wrote:
- quote -

Oh, there's nothing new about predicting that gridlock is good for the
market. Anybody could do that, in fact, I've done so myself.
Predictions, in the absence of data, are not interesting.

What is valuable is that the analyst (Mark W. Riepe; published in
Journal of Financial Planning, August 2004) analyzed the actual data
from 1953 through 2004, comparing gridlock to non-gridlock years.
Years in which a single party controlled the legislative and executive
branches had an average return to the overall market of 10.67 percent.
For the gridlock years, the average return was +14.08 percent.

This is not a Democrat-vs-Republican thing. When a Democrat president
had a Republican Congress, the market outperformed times with Democrat
president and Democrat congress. When a Republican president had a
Democrat Congress, the market outperformed Republican president with
Republican Congress. It's the opposition effect-- gridlock-- not the
party affiliation.

Of course this could be chance. That's 50 years of data, but fifty
years is really not that long a data series; the market has cycles that
are longer than that. Still, it's very provocative data.

Sorry if you think that's "politics", not "analysis." If you'd like to
try your own analysis of the data, I would be interested in seeing the
result.

- quote -

--
Franklin Jefferson
***My blog: Jefferson's Democracy***
http://franklinjefferson.blogspot.com

"Franklin Jefferson" <franklinjefferson[at]hotmail.com> wrote in message
news:1162587568.433214.293960[at]h54g2000cwb.googlegroups.com...
<snip> So, if the Democrats win, the most likely case is to expect government
- quote -

Government spending will not go down regardless of which party is in power.
The last time Federal Government spending went down was 1965. Spending
dipped to 118.2 billion from 118.5 billion in 1964. Federal spending has
gone up every year since 1965 and there is no rational reason to expect
something different in the future. Plan accordingly.

Elizabeth Richardson wrote:
- quote -


Are you a moderator?

Best regards,
Bob

Elizabeth Richardson wrote:

- quote -

If only the OP had stopped at telling us, simply, to VOTE... <sigh
-Mark Bole

"Mark Bole" <makbo[at]pacbell.net> wrote in message
news8R2h.1390$Mw.320[at]newssvr11.news.prodigy.com...
- quote -

"1. Lengthy posts, cross posts, copyrighted material, articles and
political comments should be directed elsewhere. And except in
flattering terms, reference to another poster or group of people is
discouraged."

The OP had one goal in mind when he posted and it had nothing to do with
financial planning. It had to do with telling us how to vote. If that's not
political I'll eat YOUR hat.

Elizabeth Richardson

Franklin Jefferson wrote:
- quote -

I don't know why that Schwab guy would get credit for the idea that
gridlock is good for the stock market, I remember reading that at least
10 years ago. It makes some sense, kind of, but I don't think it's worth
spending time attempting to predict this kind of thing -- nothing is
particularly "likely" even assuming we know who's going to win, which we
don't.

As an example you could say that perhaps a Dem-controlled Congress will
clamp down on government-sponsored entities Fannie Mae & Freddie Mac, to
such an extent that it leads to a big constraint on lending and a rapid
collapse of housing prices, defaults on the loan portfolio, Armageddon,
and adoption of the Loonie as our new currency.

Or not...maybe they won't do that, and maybe there won't be any effect
even if they do.

There are literally hundreds of these "what if?" narratives around
election issues and the market is far too complex to say with any
likelihood how it will all net out. Makes for blog material though, I guess.

-Tad

Elizabeth Richardson wrote:


- quote -

Disagree. The OP tied the politics directly to financial planning
issues, specifically the stock market.

We don't operate in a vacuum. For example, do you think the failure to
extend for 2006 some key federal income tax benefits, such as tuition
and fees deduction, state sales tax deduction, and so on, is not related
to politics? Ditto for the future status of the current law allowing
unlimited Roth IRA conversions a few years from now, and zero capital
gains tax rates for some taxpayers?

By comparison, a current article on www.marketwatch.com (from DowJones)
relates the price of gold to the outcome of the election.

On the other hand, the OP was not answering anyone's question, so the
question of spam arises. Is this a result of the new policy on posting
with links (which I favored?)

If the discussion remains grounded in financial planning, it should
continue. The usual moderator admonishments regarding trimming of prior
posts and such will go a long way to address this. After all, you are
free to ignore any specific thread while still participating in the
group. This thread is clearly identified as "election effect on the
stock market".

-Mark Bole

"Franklin Jefferson" <franklinjefferson[at]hotmail.com> wrote in message
news:1162587568.433214.293960[at]h54g2000cwb.googlegroups.com...
- quote -


Elizabeth Richardson

One possible effect of the election next Tuesday is that enough
Democrats will be elected to take over one or both chambers of
Congress. What's that likely to do to the stock market?

This would bring the government to a condition sometimes tagged
"gridlock", where the government spending is severely hindered-- a
spending spree by a Democrat congress would be vetoed by the Republican
president, while spending proposed by the Republican president wouldn't
make it into the congressional budget. Oddly, this is the best case
scenario, as far as business is concerned:

The likely result would be legislative "gridlock," which historically
has been bullish for stocks, notes Mark Riepe of the Schwab Center for
Investment Research. His analysis of election years dating to 1953
shows that the average return of the Standard & Poor's 500 index was
14.1% per year in gridlock years, vs. a 10.4% gain when one party
controlled the presidency and both chambers of Congress.

(from
http://www.usatoday.com/money/market...ers-usat_x.htm)

That's a 36% higher annual return for gridlock years-- not just
bullish, but hugely bullish for the market.

"Faced with a Democratic majority in Congress, President Bush would
utilize his veto pen a little more readily," says Jerry Webman, chief
economist at Oppenheimer Funds.

The USA TODAY "Small Business" columnist notes:
"A balance of power in D.C. would help small businesses"
http://www.usatoday.com/money/smallb...-balance_x.htm

"There is no doubt that the election of 2006 will have some fairly
profound effects on the business landscape.

"The first is that because it seems likely today that the Democrats
will take back the House, we will once again have divided government. I
recall during the 1990s, when Democrats controlled the executive branch
and Republicans controlled the legislative branch, that there was much
talk of "gridlock" in Washington. But do you know what? Gridlock was
not so bad. Too much power in one party, whatever the party, seems to
poorly serve both that party and the country.

"So, ironically, with gridlock poised for a comeback, legislative
change is in the air. The beauty of divided government is that both
parties are forced to compromise to get anything done, and that alone
is usually good for all of us."

So, if the Democrats win, the most likely case is to expect government
spending to go down, and expect the economy to go up.

--
Franklin Jefferson
***My blog: Jefferson's Democracy***
http://franklinjefferson.blogspot.com