Let the Games Begin

So the Fed cut rates ¼ point. Makes the topic easier, even though I was ready to write about customer service. Not to bitch, but to try and remind people of that lesson learned first semester in Economics; it’s cheaper to keep a customer than to replace one. I can write that one anytime. This one, well, I can’t help but address.

Before I dive in deeper, yes, last time I wrote about the S&P going down and it went straight up. Got stopped out. I’m OK with that. It’s why I use stops, because my opinion has not changed, but the market let me know I was wrong at the time. So I’ll wait for another opportunity in the market that jibes with my opinion. While I generally try to be agnostic except for what the charts tell me, I just can’t get long. But I will listen to my charts and I won’t go short. And this actually provides a good segue as we discuss The Fed…again.

The feedback (opinions) on this move are mixed. There are some (a couple on The Fed, outside analysts, me) that believe this move was supported more by political pressure than by economic need. And that’s what makes a market go, differing conclusions and opinions. What makes a market go up is a President nearing an election for a second term. At least that’s my perception. And I’d guess, that when they don’t go up in that election year, it’s not for lack of effort on the part of the President. I’ve heard others voice the same thought, and so I figured it was time to look at the numbers; do sitting Presidents really have the ability to affect a market and is it something they actually do?

Let’s think about this. We need to start with an assumption (there’s usually at least 1 assumption, no matter what we say about the word ass-u-me). That assumption is that people vote their pocket books. In other words, all the idealism vs realism (the party in power is always “realism”, the other is “idealism”), none of the talking points or campaign platforms, promises, etc. actually make a difference. We all talk about lots of issues but then we also base the final decision on the same single issue.

If people are feeling “comfortable,” if they think that their finances are in decent shape and are optimistic about their own personal economic future, they will vote for the incumbent. After all, that must be the person that’s responsible.

And what are most people equating with this economic status? I say the Dow Jones Industrial Average. Not the S&P 500. Not the Russell 2000. Not the strength of the US Dollar (unless planning a European vacation). Possibly interest rates, but only for those buying cars and houses. In general, over time, the Dow has been what people have looked at. And much of that is habit, it’s been around since before the beginning of the last century. Also, simplicity. There’s less thinking involved because it’s quoted constantly, so therefore it must be the most important benchmark.

I traded commodity futures in the pits for almost 14 years. Then I traded those same futures instruments for another 10 years. And to this day, my mom wants to know “what did The Market do?” What she wants to know is was the Dow up or down. Thirty companies. That’s it. But it’s easy, and it’s been around. Think about how long it’s been around. It’s been around for the growth, and the decline, of many of the industries that so many people in our country participated in. Many had their futures staked in pension plans. And those pension plans invested in Blue Chip stocks. So as went the Dow, so went their futures.

Think about that. All it takes to win re-election as President of the United States is for the Dow to go up. Do they have the ability to do this? I’m not sure. But as a gold bug, a contrarian kind of guy, I love a good conspiracy theory. And I do believe that with a nudge here and a poke there the market, the Dow, might do a bit better than it otherwise would. A contract award. Some infrastructure work. A trade deal. That’s all. And yes, it’s all for the better. But it still makes me wonder whether our elections haven’t been used as a tool by candidates for decades.

These are beliefs I’ve had for a long time, more as a Political Science major than as an Economics minor. So I finally decided to look at the numbers, because if I’m going to get stopped out of my shorts, I might as well look deeper at “The Story Behind the Picture.

The Dow Jones Industrial Average was first published in 1896. Back then it was only 12 companies. But it was 12 blue chip companies. It was the gauge of the economy and whether people were happy or not with the current president to re-elect them. I went back to 1900. The Dow was 4 years old. A Presidential election cycle. Perfect.

Presidents

Since 1900, there have been 30 presidential elections. In 20 of those, a President was running for re-election. In 15 of those 20, the sitting President was re-elected. Within those 15 re-elections, only 3 times was there a negative return in the Dow. On the other side of the math, we can look at the 10 instances when a sitting President was not running. Only 3 times did the same party stay in office. Lack of motivation? Lack of interest? Thinking about where the Presidential Library should be?

I am generally the first to point out that Correlation does not imply Causation. And as someone who has gotten stopped out of many trades, I’ve learned this first hand. I learn from all my losing trades. Much more than I learn from my winners. And the point of this blog is to provoke thought. Really to simply present a perspective in the hopes that along the way people will learn at least something. So for me, what I learned from my losing trade is that I should always remember to process as much information as I can before taking a position. And the information that I didn’t include in my analysis was something that I’ve said for years. Don’t bet against a bull market when someone is seeking re-election. It’s not 2020 yet, but it’s close. So I’m flat. I think I’ll just watch for a while.

3 thoughts on “Let the Games Begin

  1. Pingback: Where to Begin? | The Story Behind The Picture

  2. What happened to the Dow average in the 5 instances when incumbent president lost re-election. I know one was Carter vs Reagan and that may have been hostage crisis and oil prices driven.

    On Tue, Aug 6, 2019 at 11:10 AM The Story Behind The Picture wrote:

    > Bill Sindel posted: “So the Fed cut rates ¼ point. Makes the topic easier, > even though I was ready to write about customer service. Not to bitch, but > to try and remind people of that lesson learned first semester in > Economics; it’s cheaper to keep a customer than to replace o” >

    Like

    • I thought about examining that, but decided as a Chart follower, ‘why’ mattered less on a statistical basis. One could also argue that the Carter vs Reagan is “cancelled out” by the fact that Carter was elected post Nixon resignation.

      Like

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