You can the cut the tension that’s building around the upcoming presidential election with a knife, and it’s only going to get worse as the parade for power reaches critical mass in the fall.
While each side of the political spectrum has very passionate supporters, only time will tell who will win the White House, but for now many investors and business leaders are playing it safe by sitting on the sidelines and playing the waiting game. Others (like Goldman Sachs, UBS, JP Morgan)* are taking a more active role by vying to keep Washington in their pocket through bi-polar contributions to both Obama’s and Romney’s campaigns.
One thing that’s for sure is investors, CEOs, and small business owners are anxiously searching for some sort of clarity on who could win the election and more importantly what it will mean to their bottom line. What they're watching:
Since I help people manage their accumulated wealth, the last question is of particular interest to me. What President will provide the best outcome for the markets? A far-left President that believes in a government controlled economy and easy money policy or a far-right President that believes in smaller government and looser regulation? Only time will tell, but I believe there's a real underlying question (when it comes to your portfolio) that no one is asking:
Does it really matter who the president is? Does the market really care?
I discovered the answer to this question in a book written by Michael Covel called Trend Commandments. In it, he lays out a brief but important history lesson:
"President Bush Sr. had an 89 percent approval rating on February 28, 1991. Then the economy tanked. His fault? No. Real estate crashed in the early 1990s, not long after the savings-and-loan debacle of the late 1980s.
What happened next? [Bill] Clinton won the fall 1992 election. However, Clinton's election did not signal roaring economic times. . . then magic happened. During late 1994, the Internet started to roll…and stock markets boomed during 1995-1999. The Dot-com bubble was on. However, this bubble was a problem and people knew it. . . Greenspan uttered the phrase 'irrational exuberance' in a December 1996 speech, but simply pointing out a bubble was only so useful. In fact, he was resoundingly ignored, and even jeered by some in the financial media.
The good times kept rolling. . . America was feeling rich. Party over. The Nasdaq crashed in March 2000. The Fed, knowing the massive problem on their hands and deathly afraid that the Dow would deflate, started cutting the Fed Funds rate of over 6 percent on May 16, 2000 to a low of 1 percent in June 2003. If the Dot-com bubble had not popped. . . would Al Gore have been president? Perhaps. . . [but] President George W. Bush inherited the Dot-com bubble implosion, and less than a year into office, 9/11 hit. However, Fed rate cutting had already started a new bubble blowing. This time real estate and the Dow were zooming up. People rewarded Bush for the economy even though it was the middle of another bubble.
All is running smoothly until summer 2007, when the new bubble starts to deflate. It finally crashes in October 2008, and President Barack Obama wins the presidency standing at the right place at the right political time. If the economy had not sunk over 2007-2008, would Republican candidate John McCain be president? Probably. The economy could crater again, or not. If it crashes or not, is it all Obama's fault? No."
Am I saying you shouldn't be involved or engaged in the election? No. Go all out for your guy, but there’s serious wisdom in Covel’s lesson - the markets go up, we reward the president; the markets go down, we find a new guy. And so the cycle continues.
Covel finishes his lesson with a zinger of a gut-check:
"Are you sitting there still thinking the president will fix your portfolio?"
Look, there's no telling to what degree the Fed or the government will go to falsely prop up the markets, so ask yourself do you have an investment strategy aimed at keeping you on the right side of the ledger through the good and bad times? Or do you just trust the system?
*Source: Center for Responsive Politics & Bloomberg.com
Robert Russell is CEO & CIO of the Ohio-based Russell & Company, a private wealth management firm specializing in helping affluent individuals ages 45 and up create and preserve their wealth. He co-hosts a radio show, authors The Rob Report blog, and is a frequent contributor to FOX Business and CNBC.
Securities offered through Kalos Capital, Inc., Member FINRA, SIPC. Investment Advisory Services offered through Kalos Management, Inc., 3780 Mansell Rd. Suite 150, Alpharetta, GA 30022, (678) 356-1100. Russell & Company is not an affiliate or subsidiary of Kalos Capital, Inc. or Kalos Management, Inc.