Congress: Doing More Harm Than Good

Does having Congress in session, doing "the peoples work", actually make things better?

According to a new economic analysis of stock market returns, not if you are an investor!

Congress Consistently Hurts Your Investments
Eric Singer has done an interesting analysis of stock market returns going back to 1963. The analysis looks at the returns of the overall market as represented by the S&P 500. His analysis compares market returns when Congress is IN SESSION versus when they are OUT OF SESSION. To some of you, the results will be shocking. To those of us in the free market camp, the result are intuitive and expected.

S&P 500 Average Returns 

(Past 44 years - Annualized)

 

When Congress is 

OUT of session   17.6%

 

When Congress is 

IN session                                                 1.6%


Are You Surprised?
You may be saying... how could this be? Isn't Congress always doing things to help the US economy. Aren't they trying to help us? The sad part is that they are trying to help. But, they are incapable of helping!

3 Ways Congress Destroys Investment Returns

• Regulation: Regulation constantly grows. It grows slower under Republicans than Democrats, but it grows. Why do we have regulation? Because Congress believes that they are "protecting" people. They are bombarded by lobbyists, the liberal media, constituents and even businesses wanting to be advantaged in some way versus someone else.
  
• Just look at Rep. Barney Frank's comment in an interview on CNBC last week.
• Q. Are you wanting to usher in a new "golden age" of regulation?
• A. Yes!
  
• Note: I spilled my coffee when he so directly said "yes" to a "golden age of regulation."
• The more the regulation, the more the POWER. Power for Congress. Power for government agencies ... Power for bureaucrats...Power for lobbyists.
• WHY DOES REGULATION HURT STOCK MARKET RETURNS?
  
• Regulation, by definition, increases costs.
  
• Regulation artificially advantages one group over another.  It causes inefficiency.  Businesses are not pure and innocent in this. They use lobbyists to influence Congress and Agencies to protect them from competition. Just think of the battles between the phone companies and cable TV companies.
  

• Uncertainty: When Congress is in session and doing "work", it creates uncertainty. Investors (aka The Market) hate uncertainty! As Eric Singer says, "Talk is NOT cheap."

• Taxes: Over the long term, Congress raises taxes. These taxes are not just used to raise revenue. They are used as instruments of social policy (redistribution of wealth, etc) and stealth regulation. All of these increase business costs and uncertainty.

For more on why Congress believes they are helping and why they are wrong, see my July 17 post on Nobel Prize winner in Economics... F. A. Hayek's... concept of the "Fatal Conciet."

Barney Frank's "Golden Age of Regulation"

Congress - Doing What It Does Best

Congress - Doing More Harm Than Good

Note 1: I am NOT a broker or financial planner. Eric Singer has started a mutual fund to turn this analysis into a stock market strategy. You can contact him directly if you are interested.

Note 2:  It seems clear that there is a correlation present in Singer's analysis.  I have not done any study to confirm causation.