Trade the Congressional Effect: How To Profit from Congress's Impact on the Stock Market

Chapter 12

“ThatGovernment is Best that Governs Least”

Thomas Paine was right when he said it in 1776, and it is still valuable advice for governing and for understanding Congress's impact on the stock market today. We have seen in earlier chapters how Congress is relentlessly short-sighted. I do not mean to suggest that all congressmen are bad actors, especially intentionally bad actors. In fact, the ones I have met are predominantly intelligent, articulate leaders, many of whom clearly went to Washington with a motive of trying to make the world a better place. But once they drink that Washington water, something happens. When they are in that Washington crowd, doing what they see everyone else do to get reelected, the natural outcome of the forces that drive them harms your investments.

This chapter reviews the impact that the drift toward partisan politics is likely to have on investing, the aggravating impact government has on the business and investing cycle, and the conflicting and cumulative, mostly harmful, impact Congress has on the market. In passing, it deals with whether there are some things we can do to start to change the adverse incentives Congress has to intervene in the broad markets.