Gridlock is good because when Congress is tied up in knots they can’t do anything to hurt us. This idea has been verified by the market many times over the past 25 years.
The Clinton Administration 1993-2001
Mr. and Mrs. Clinton got off to a rocky start, even with a Democratic Congress in place the first two years of their administration … Mrs. Clinton as the non-elected person in charge of President Clinton’s healthcare initiative and the President over the issue of gays in the military (on both issues they were ahead of their time). After the Republicans regained control of Congress in 1995 most everything they sent to the President, especially anything that required additional spending, was vetoed. Essentially, Clinton out-Republicaned the Republicans as a fiscal conservative. The economy roared. Interest rates fell. We ran a surplus and the S&P 500 ended the decade with an 18% compounded rate of return. Just one small problem … at the end of the decade they found common ground in banking reform. Gramm, Leach, Bliley (1999) replaced Glass–Steagle (1933) and the table was set for the 2007/2008 financial crisis.
The George W. Bush Administration 2001-2009
Mr. Bush had a Republican controlled Congress for his first term in office. After a justifiable attack on al-qaeda in Afghanistan the administration turned its attention to Iraq. Republicans and Democrats alike went along with that invasion. We are still sending our young men and women into harms way in both countries.
Last, but not least–the Obama Administration 2009-2017
With the Democrats in control of both houses in 2009 and 2010 President Obama was able to push through the Affordable Care Act (A.K.A. – Obamacare). This was a boon to 2o million Americans, who otherwise could not afford insurance or were disqualified due to pre-existing conditions. Many other Americans, however, faced higher premiums, shrinking insurance and provider options. To those on the short end of the stick, I’m certain gridlock would have been their preferable form of government.
We’ve been in a state of continuous gridlock in this country since the 2010 mid-terms (including the first 117 days of the Trump administration) and it has not been so bad. Since November 2011 the S&P 500, as a proxy for the economy, has risen more than 90%.
So, why the fuss over the most recent revelations in Trump vs. Comey?
I’m not sure. Obviously it is not, or should not be, about postponement (due to investigation preoccupation) of the Trump agenda. If that were the case, it should have hit the market months ago, as it was very apparent that this administration’s own actions and distractions had become the biggest impediments to any potential legislative progress.
So, why the fuss? The pundits and talking heads, for some reason, always have to have a reason for any drama in the market (today’s a 1.8% drop in the S&P and 2.57% drop in the NASDAQ). They are here to engage, not to inform. Today’s market drama really isn’t dramatic. These declines are tiny moves off record highs. Sure, it may be the beginning of a more significant correction. That would be normal, too.
Importantly, you should not be setting your market course based on the latest political news or based on your own reaction to partisan political commentary, commentary designed to make points versus the opposition rather than enlighten and get at the truth.
This header and link is to a quote from professor Jeremy Siegel, University of Pennsylvania, Wharton School of Finance. I’m not sure about the prediction (the market is hard to predict, period) but I would not disagree with a conclusion that it would be a positive for the market. Stay tuned and don’t panic.
What is your take?
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