Trade the Congressional Effect

Praise for Trade the Congressional Effect
"Once in a while, an idea, a small gem, comes along that reflects the whole world. Singer's book is it, a thesis to live from, learn from, and make money from. Singer provides that which we all long for: a way to make money from political insight."
--Amity Shlaes, author, The Forgotten Man
"Thanks to Mark Twain, we know that nobody's 'life, liberty, or property is safe while the legislature is in session.' Now, thanks to Eric Singer, we know why, and what to do about it. In these pages, he admirably succeeds in the important task he has set for himself. To wit: how to protect yourself, and your net worth, from the depredations of Congress. "
--James Grant, Editor of Grant's Interest Rate Observer
"The author's straightforward idea--that Congress harms wealth creation--provides many insights into politics, the economy, and investing. Trade the Congressional Effect will appeal to serious investors, as well as policy wonks and libertarians ... but it should be taken to heed by the 535 men and women who pass some of their days on Capitol Hill. Some surprising insights--a devastating attack on Modern Portfolio Theory ... a look at what caused the Great Depression ... Congressmen as traders and speculators ... the effect of split governments, lame ducks, and litigated elections on the stock market ... Reading Trade the Congressional Effect will provide much guidance about Congress's 'unintended consequences' that are so persistent, casually dangerous, and impoverishing."
--Adrian Day, President, Adrian Day Asset Management

Acknowledgments xi
Introduction 1
Our Damaged Economy 2
Congress's Role in Wealth Destruction 8
Summary 9
Notes 10
CHAPTER 1 What Is the Congressional Effect? 13
How Was the Congressional Effect Discovered? 14
Early Returns Showing the Congressional Effect 19
The Smoot-Hawley Act: The Mother of All Congressional Effects 23
The Congressional Effect Data and Launching a Mutual Fund 24
Summary 26
Notes 26
CHAPTER 2 The Congressional Effect and the Limits of Modern Portfolio Theory 27
How MPT Has Been Used by Financial Advisers 30
Formulas Distort Valuation if Inputs Are Not Free Market Inputs 33
What Caused the Crash of 1987? 36
The Magnitude of the Crash of 1987 Refutes MPT 38
MPT Assumes All Daily Pricing Is Random, but the Congressional Effect Shows It Is Not 39
Summary 41
Notes 42
CHAPTER 3 Congressmen as Issues Entrepreneurs 43
The Time-Money-Vote Continuum: Congress as a Business 44
Congressmen as Traders and Real Estate Entrepreneurs: Making Money Outside Their Day Gig 54
Summary 57
Notes 58
CHAPTER 4 Behavioral Finance, the Stock Market, and Congressional Dysfunction 59
Overview of Behavioral Finance Concepts 60
Survey of Behavioral Finance Concepts 61
Congress's Approach to Behavioral Finance 67
Summary 78
Notes 78
CHAPTER 5 If Congress Is Malfunction Junction, What's Its Function? 81
Economic Lifeblood: Investment Capital Formation, the Stock Market, and Congress 81
Dodd-Frank Overview 90
Health Care Reform 95
Burning Coal and Other Energy Investors 103
Summary 110
Notes 110
CHAPTER 6 Where Will Washington Strike Next? 113
Where You Can Find Information 114
How to Leverage This Glut of Information 123
Summary 124
Notes 125
CHAPTER 7 Sidestepping Congress's Wealth Destruction with a Macro Approach 127
11, 832 Data Points Support the Congressional Effect Theory 128
Congress and the Tragedy of the Commons 130
Adam Smith, Call Your Office! 131
Summary 136
Notes 136
CHAPTER 8 Are Democrats or Republicans Better for Your Portfolio? 139
Who Gets the Credit for the Bull Market in 1980? 140
Unified Government Favors Nominal Returns 142
Split Government Favors Real Returns 145
Republican Congress vs. Democratic Congress 146
Filibuster-Proof Majorities Hurt Returns 147
Summary 148
Notes 149
CHAPTER 9 Leverging the Election Cycle 151
The Presidential Cycle and Real Returns 152
The 2012 Election and Beyond 156
Notes 157
CHAPTER 10 Are Lame Ducks, Impeachments, Resignations, Vetoes, and Litigated Elections
Good for the Market? 159
President Bill Clinton 161
President Andrew Johnson 165
Resignations 167
Lame Duck Sessions 167
Litigated Elections 168
Vetoes 170
Summary 171
Notes 171
CHAPTER 11 More Ways to Dodge Congress's Stray Bullets 173
Value Funds: Longer Time Horizons than Congress or the Somali Pirates 174
Gold Funds: Avoiding Congressional Debasement 177
Beyond Congress: International Funds 179
Reducing Global Security Risk 181
Summary 182
Notes 183
CHAPTER 12 ''That Government Is Best that Governs Least'' 185
Prognosis: Increasingly Partisan Politics Is Not Good for the Market 185
Conflicting Government Mandates Promote Market Instability 189
The Cumulative Effect of Unintended Consequences Is Congressional Wealth Destruction 191
Congress's Dysfunctionality and the 2012 Election 193
What Happens When Congress Does Not Know the Price? 195
Congress Needs to Attract the Best Talent 197
In Conclusion 198
Notes 199
About the Author 201
Index 203