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

What Happens When Congress Does Not Know the Price?

One other thing profoundly concerns me about reducing the damage that Congress sporadically inflicts on our investments. At the very beginning of the book, I expressed a concern that Congress does not know the cost or price of its actions. The CBO uses only static scoring to estimate the impact of a law on our budget. Many people have advocated dynamic scoring, which would allow for higher revenues being estimated for certain lower tax rates. It should be about optimizing revenues, especially in an internationally competitive world. In addition, I think the CBO process should be supplemented to assess the capital markets impact of what Congress does. Perhaps some committee should have the responsibility for estimating that the health care stocks' market capitalization will decline by $500 billion if we pass this law, or the retail sector will decline by $100 billion in market capitalization if we pass that law.

Let's call that committee the Capital Markets Impact Committee or CMIM for short. It has long been accepted in Washington that the presence of an acronym makes a prediction credible. Scoring by the CMIM could be used in the political arena to help weigh whether a bill was good or bad for the country, and it is highly unlikely that it could be less accurate than the scorings currently produced by the CBO. In hindsight, if a CMIM had scored the Patient Protection and Affordable Care Act as eliminating $500 billion of wealth ...