Now, I'm sure that John Kerry is the single most important topic to the American voter this election.
Not saying that what John Kerry says shouldn't be first place, but in very distant second is how much American investors have to cough up in returns, and how much American families lose via devaluation of the U.S. dollar as a reflection of Republican policies.
And it's especially bad when Republicans control both ends of Pennsylvania Avenue.
The mechanics of why are transparent: When one party controls the whole show, checks and balances are compromised.
And when the system of checks and balances is systematically destroyed, well, it's that much worse.
Data Sources
Glaze over this part, if you prefer.:)
Standard and Poor's historical prices, available via finance.yahoo.com.
For foreign exchange, I'm checking the USD versus the German Mark (DM), adjusted at the final conversion rate for the Euro after December 31, 2001. Save for the final date (11/03/2006) I'm using average FX rates for entire years.
The Test Period
1950-Present
Independent Variables
1. Republican President (1 = Yes, 0 = No)
2. Republican Senate (1 = Yes, 0 = No)
3. Republican House (1 = Yes, 0 = No)
Dependent Variables
Change in the value of the S&P500 Index, as a proxy for the overall U.S. equity market.
Change in the FX (foreign exchange) value of the U.S. Dollar versus the German mark (Euro, post-2001), as a proxy for inflation plus currency risk.
Change in FX-adjusted value of the S&P500 Index, to capture both effects.
Let's Start with Control of the Presidency
Well, we can't do anything about that this time around. Pity.
Why? For starters, the U.S. Dollar retains more of its value, year in and year out, when a Democratic President is in charge. (-.06%/yr devaluation for Dems, versus -2.30% annual decline under Republicans). And you can check this out versus other fungible currencies.
Now, if you parse out Bush as being something other than Republican, you get -1.71%/yr under Pubs and -5.09% every year under Bush. Some Decider decided not to care very much about inflation, save for how to bury it.
As for the stock markets? Under Pub presidents, the S&P500 averages an increase of 7.57% per year....as opposed to +11.72% under Democrats, which is generally considered a superior return on investment.
When combined with the devaluation numbers, you get an FX-adjusted return on equity of 5.14%/yr under Republican presidents, and a 11.67%/yr return under Democrats.
Once more, with feeling. Adjusted for inflation and currency risk, the markets do twice as well under Dem presidents as Republican ones.
Alas, we can't do anything about that right now...
...or can we?
After all, the beauty of the checks and balances system si that it is possible to put a body check on that player, how 'bout it?
Of course, it's not just about the White House...
In reality, the branches work together, with control of the House of Representatives being of special importance, as the House has particular importance in the formulation of the budget.
It's like this: Both Republican and Democratic presidents preside over better markets when their opponents control the House of Representatives....equity returns are better, the greenback is stronger than when either all Dems or all Pubs run the show.
Sadly, if you're a Republican partisan, the best the Pubs do is less than the worst the Dems do...
1. Dem Prez, Pub House. +20.24%/yr S&P growth, +5.04%/yr appreciation of USD versus DM/Euro. Adjusted return: +25.51%/yr.
2. Dem Prez, Dem House. +8.71%/yr S&P growth, -1.86%/yr dollar value. Adjusted return: +6.79%/yr.
3. Pub Prez, Dem House. +7.98%/yr S&P growth, -1.84%/yr dollar value. In other words, pretty much par. Adjusted return: +6.16%/yr.
4. Pub Prez, Pub House. +6.21%/yr S&P growth, -3.80%/yr dollar value. Adjusted return: +1.82%/yr.
There are few investors, save for specialists in short sales, who would prefer single-partisan Republicanism to, well, every single other oppourtunity available.
Of course, perhaps you don't need that extra 4.34% per annum. I mean, it's only money. On about $16 trillion in combined market value, that's not even $700 billion. Every year.
Do You Accept Checks and Balances?
The strengths of any given Oval Officeholder are enhanced by refinement through checks and balances -- and the corresponding weaknesses are mitigated.
This is simply not possible when one branch of the government acts as a rubberstamp for the other.
And that's advice you can take to the bank on Election Day, American investors.
For just under $700 billion a year.
Perhaps what John Kerry has to say has some competition for your attention, after all.