Stocks do Better When Congress Leaves Town!

Human Events, Aug 4, 2008 by Skousen, Mark

The following chart is a politician's worse nightmare-and an investor's dream.

It turns out that the best time to make money on Wall Street is when Congress is out of session. In fact, according to Wall Street analyst Eric Singer, stocks do ten times better when Congress leaves town. (Good news! The House has gone on recess, and the Senate set to leave any day, and they won't be back until September!)

Whether you're a Republican or Democrat, this is a real eye-opener. We all hate to see our hard-earned taxpayer money wasted, or our business over-regulated. Now the evidence is in: Politicians are bad for Wall Street, and your pocketbook!

Singer revealed his shocking study at this year's FreedomFest in Las Vegas (www.freedomfestcom). He went back to 1963, "When we went off the silver standard" (as he puts it). He found that the S&P 500 Index has gone up only 1.6% a year during the time when Congress is in session... and a whopping 17.6% annually when Congress is in recess.

Economists Michael Ferguson, of the University of Cincinnati, and Hugh Douglas Witte, of the University of Missouri at Columbia, confirmed Singer's proposition.

They found that since 1897, 90% of the gains in the Dow Jones Industrial Average came on days when Congress was out of session. A dollar invested in 1897 with the strategy of going back to cash every time Congress met was worth $216 by 2000.

But an 1897-dollar invested on the reverse strategy was worth only $2. The correlation got worse after World War I, when Washington started playing a more activist role in taxing, regulating and inflating.

Why is this relationship the case? According to Singer, the correlation was no coincidence. When Congress is in session, it often raises taxes on individuals and businesses, increases regulations, and hurts publicly traded companies. He pointed to compelling examples:

When a Health Care Task Force was formed in 1992, health care companies lost $100 billion in market value until the Task Force appeared to end.

Most recently. Congress has passed a bill to bail out the housing market, which many analysts warn will have unintended bad consequences.

Congress creates uncertainty in the business world, and Wall Street hates uncertainty. As Singer says, 'Talk is not cheap." But it can be lucrative.

What to do? You can take advantage of this knowledge in your own investment strategy by being more conservative when Congress is in session. With both houses gone for August, get ready to buy!

Singer is so convinced of this relationship that he created a no-load mutual fund for individual investors who want to profit from the pattern. On May 23, 2008, he created "The Congressional Effect Fund," which requires a $1,000 minimum investment. As of press time, the fund already is up 0.7% while the S&P 500 Index is down 10%.

The fund invests in the stock indexes when Congress is out of session and in interest-bearing accounts when lawmakers are in session. It's that simple. Of course, this requires the fund manager to switch assets 15 to 20 times a year, but in today's efficient marketplace, it's not that costly.

When the fund reaches $10 million in assets, it will get a symbol, like any new fund. Meanwhile, you can invest directly. To do so, just go to http://www.congressionaleffect. com/.

Mark Skousen is the editor of Forecasts & Strategies and the author of the most recent book, EconoPower: How a New Generation of Economists is Transforming the World (Wiley & Sons, 2008). He is a regular contributor to CNBCs Kudlow & Co.