Author Topic: Making Congress Pay  (Read 627 times)

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Offline 5412

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Making Congress Pay
« on: May 10, 2009, 04:23:34 PM »

Great article in the Chicago Sun Times today.  Surprised they printed it they are normaly pretty biased.


May 9, 2009
By Eric Singer

How much money did you lose last year? If you're like most Americans, your retirement funds, college savings accounts, and any other investments tied to stocks suffered greatly.
It didn't have to be this way. You could have followed a simple investment rule that would have spared you from much of the past year's losses.

You could have invested only when Congress is on vacation. It may sound a little crazy, but I am totally serious. When Congress works -- and by "works" I mean "meddles" -- it destroys wealth. When Congress doesn't work, wealth grows by itself.

From 1965 through 2008, looking at a total of 11,000 trading days, the annualized daily price gain of the S&P 500 Index is just 0.31 percent when Congress is in session. Out of session, that figure jumps to 16.15 percent, a daily difference of 50 times.

As government power and influence grow, the trend has intensified in recent years. From 2000 through 2008, in-session performance of the S&P is down 12.4 percent. The out-of-session performance: up 8.8 percent.
In other words, had you invested $10,000 only when Congress was in session from the beginning of 2000 through 2008, putting aside dividends, you'd have $4,615 today. Had you invested that same $10,000 only on days when Congress was on vacation, you'd have $13,416 today.

The reason for this is that the biggest risk in the market is the political risk that Congress will change the rules for many industries -- and keep changing or threatening to change them.
Investors face enough risk as it is. They don't like added uncertainty. Political "reform" -- or even just the prospect of it -- adds a great deal of uncertainty and thus depresses stock prices. Doctors are told: "First, do no harm." Members of Congress seem to follow a different injunction: "First, do something. Worry about consequences later."

In recent months, consider how much uncertainty investors have had to confront:

• • Massive financial interventions with simple-sounding acronyms but complex, changing features: TARP, TALF, PPIP, and others.

• • The drama over how much Washington would bail out Detroit automakers, probably throwing good money after bad.

• • A budget deficit that has gone from bad to unbelievable.

• • New rules for homeowners facing foreclosure and bankruptcy.

• • Threats that credit-card companies are about to have their rules drastically changed, as well.

My concern about the impact of political risk on the markets prompted me to open a mutual fund called the Congressional Effect Fund (www.congressional It is very simple. When Congress is in session, the fund invests in Treasuries and other cash equivalents. When Congress is on vacation, it invests in instruments that track the S&P 500.

The fund opened last May 23, and for 2008 it was down 2.2 percent, as compared with a drop of 34.2 percent for the S&P 500 Index from the same date, a difference of 32 percentage points. So far this year it is down less than 1 percent, while taking on less risk.

Eric Singer is the founder of the Congressional Effect Fund.