FYI | Oct 11 2012
By Andrew Nelson in Florida
It’s an age old chestnut and God knows where it came from (not facts, that’s for sure), but many in the US will stand by the claim that Republicans are good for the market. Don’t get me wrong, I’m not claiming any left or any right is good for any market. What I am saying is that effective government is good for markets.
Effective governments come up with policies and good polices should have a life beyond party affiliation. The best thing about a parliamentary system is that the leader and the majority of lower house representatives come from the same party. Thus, while compromise may be the key to good government, the ability to push though needed legislation is the key to effective governance. And I’ll take an effective government over an ineffective government all day long.
So while Obama and Romney and CBS and Fox sit and argue economic ideology and pundits line up on the sides to tell us which one is better suited to fix the economy, it really doesn’t matter. What does matter is that whoever is anointed needs to be greeted by his own party’s majority in the lower house. If Obama wins the Presidency and Democrats don’t regain the house, America loses and the fiscal cliff approaches. If Romney wins the wins the Presidency and Democrats regain the house, same thing.
Simply put: The Executive and Legislative branches of US government need to be running in the same direction if markets are going to be able to gain any confidence. Just look at the last two years if you don’t believe me. No, have a look at the table below, it says way more than I ever could.
Neal Gilbert, an analyst at GFT Markets points out that “when the legislative branches are controlled by opposing parties, the Dow flounders. When they’re under the same party, the markets soar and as a result arguments to say one is more pro-business than the other look increasingly flawed – the political alignment of the President hasn’t been the deciding factor.”
So for those looking no further than the performance of the Dow, the choice of who they should be voting for is clear. Not necessarily because that party has the best solutions or policies to end the crisis, but simply because history shows us the markets perform better when the two branches of the US government are moving the same way.
With the US Presidential elections looming, the outcome will remain at the forefront of the global media agenda. And with the US economy struggling to take the next step in a much hoped for recovery, fingers will be increasingly pointed at Europe and China in an attempt to find excuses for the current state of affairs. I guess we could all hope that someone will try to cut through the rhetoric and point out exactly where the issues lie. Then you can pull the other one.
Technical limitations
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