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

Congress's Approach to Behavioral Finance

What does behavioral finance tell us about the behavior of Congress? To answer that, it is probably best to start by looking at the time horizon of Somali pirates. Every now and then we will see a headline that tells us that Somali pirates have just taken over another freighter or another ship or another oil tanker. But if you step back and think about it, the Somali pirates are in a regular business just like a hamburger stand or a department store. In fact, in Eyl, the pirate capital of Somalia, Toyota Land Cruisers are quite common. Life goes on after a raid. So what is the time horizon for the typical Somali pirate on a project that they might do? It turns out that the average pirate time horizon for a new project is several months. If you're a Somali pirate planning on hijacking an oil tanker, the first thing you have to do is identify an oil tanker, then ride out to it on the high seas, which may take anywhere from three to six weeks. If you're lucky enough to get a freighter hijacked on the high seas, you then have to contact the German or Austrian or Swiss insurance company, as the case may be, and negotiate a ransom. It's happened often enough in recent years so that there's precedent for it—there's kind of a market. The Somalis know that if they have a ship that's worth, say, $150 million, they can pretty much always charge something like $3 to $5 million and get away with it, but if they try to make it $10 or $20 or $30 million ...