Anyone who has hope of someday retiring to a comfortable cabin in the mountains or a cabana on the beach has been traumatized by the recession. Watching years of sacrifice and saving whither away in your 401K and IRA is enough to drive one to the bottle – or worse – psychotherapy.
Sure, the Dow has bounced back nicely, but we’ve just seen how a bull’s rush can quickly turn into a full retreat. A lot of us are pessimistic enough to wonder when – not if – there will be another dip on this rollercoaster.
So what’s the answer? More “change we can believe in?" Less change? Maybe turn the clock back, say, 30 years?
None of the above, say some financial gurus. Nope. They want gridlock.
Come again?
See if you can make sense of their reasoning.
They say when one party controls both Congress and the White House things get done. Laws, rules, mandates, and policies – all change. It doesn’t matter as much if the change is coming from Republicans or Democrats, they argue change is bad for business. It creates uncertainty. Wall Street apparently hates uncertainty – at least when it comes to government.
Want proof? (That’s asking a lot!)
They point to 1994. In a political environment similar to 2010, Republicans took back control of Congress. Bill Clinton was in the middle of his first term. He got his hat handed him by the electorate.
Did it mean the end of his presidency? Certainly not. But what he accomplished in the next six years had to have Republican help. That slowed things down considerably and, yes, at times led to gridlock. (Remember the government shutdown?)
James Derrick, a chief financial strategist for Smedley Financial, points out that the stock market going into the 1994 midterm elections was “slow.” But, Derrick said, “In 1995, the S&P 500 returned over 34% and then followed that with over 20% in 1996.”
In EconAmerica (2007, Wiley & Sons), Jeff Thredgold argued that much of America’s powerful economic performance during the second half of the 1990s was tied to Republicans taking control of the Congress in late 1994.
The dot.com boom also had something to do with that performance, but Derrick and Thredgold maintain gridlock (or, “balance of power”) was a major factor.
I am not telling anyone how to vote, but if predictions of Republican gains this November come true, it may at least be good for your retirement fund.
Or not.
I will close with the disclaimer that every financial analyst adds to their opinion just so you can’t show up at their house with tar and feathers when their “sure thing” turns into Enron:
“Of course, there are no guarantees!”
