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

Summary

If you're an investor, how do you figure out where Congress will strike next and how it will affect the companies that you own? Use television, newspapers, radio, and online political resources: they will be the first to inform you when there is legislation affecting a specific sector or company. Think tanks and political blogs will also provide secondary insight into the goings-on in Washington, as do search engines and other Internet resources.

Try to determine exactly which congressmen are going to be responsible for a particular bill's becoming a law, which means actually understanding which committee will wind up with responsibility for drafting the proposed law in question. The members of Congress still have a duty to relate to the public, and while you may not be able to get face time, you currently can usually reach someone who is on their staff or in the staff of the regulatory agency of the law you are interested in to get deeper insight as to what may happen.

In the long term, unfortunately, this is likely to change. The more Washington talks about transparency, the less transparency we actually get. Reg FD in the securities sector requires companies to disclose material information at the same time to all analysts and investors. In Washington, such a rule applied to political communication by incumbents may come to pass because it could perversely give congressmen even more leverage on shaping legislation in proverbial smoke-filled rooms. In addition, the lobbying ...