Americans vote with their pocket books. Or do they? With less than 60 days until the general election the question remains, who is better for the economy and ultimately our investments. Conservatives everywhere gasp. In their minds the answer to that question is quite obvious. Lower taxes and less regulation - we're better!
It should be noted that I am a life long registered Republican and have never voted for a Democratic ticket. However, the data just simply doesn't support our inherent beliefs as conservatives. This is by no means an epiphany or the beginning of some ideological transformation for me. The truth is, most Conservatives/Republicans are aware of this and always have been. What's even more interesting is that most Liberals/Democrats know this as well. So the real issue is: Why doesn't anyone point this out? What is this election about, anyway? "The economy, stupid" - I heard that somewhere. Isn't the stock market simply a glimpse into the future of the economy? So why haven't the Democrats capitalized on this simple truth... Democrats are better for the stock market. There, I said it!
Statisticians don't have to go back very far for evidence. The last 4 years is a good place to start. If you have recently awoken from a coma and have no idea what I'm referring to, here is the bottom line: The S&P 500 has experienced an increase of over 59% since 12/31/2008.
Now, you can argue that a cyclical beast like the "stock market" was destined to recover from the depths of the financial crisis regardless of who was sitting in the Oval Office. But all throughout modern history a similar pattern has been repeated many times. This is not an opinion or a casual observation. The evidence is overwhelming. Just look!
The scary thing is, it's not just the stock market. Several weeks ago "liberal fave" Bill Clinton pointed out during his speech at the DNC how many more jobs have been created under Democratic administrations vs. Republican. It wasn't just rhetoric. Statistics from the US Bureau of Labor support his message:
In all fairness, the business of understanding policy impact on economic growth and prosperity is quite complex. I have obviously painted this apparent contradiction with some broad strokes. I imagine that a look in to who controlled the Senate and House during specific periods might skew the numbers slightly. Or perhaps once in a life time phenomenon such as the Internet bubble or financial crisis have warped the numbers for a decade or two. Maybe over the next few decades there is a return to a more consistent norm that doesn't favor any specific political party.
The problem is that as of right now, the idea that Republicans are better for business is just that. An idea. Unfortunately, the source of this problem is human nature. People are people, even politicians. Most of us aren't checking our political party rule book before we make a decision and sometimes even presidents forget to do so. George W. Bush is a prime example. As conservatives we are quick to remind you that what Bush did his last 4 years in office with respect to economic policy was not very Republican.
But those of you that have been paying attention for a few decades know factually that in terms of dollars, every single president outspends his predecessor regardless of party affiliation. As a percentage of GDP any deviation from this pattern is typically in favor of the Democrats. So how is our current president doing?
So why do we believe that Republicans are better for the economy?
My rationale is simple. On message, they are better. But I believe that the expectations are typically so high for a conservative candidate that he is destined to under-deliver and underperform. Inversely, the business outlook is so grim ahead of a Democrat taking office that subsequently it is never "that bad."
Now make no mistake about it, there are certain industries and sectors that can be adversely affected by policy. President Obama has made it clear that he is no friend of "King Coal". If you currently have significant positions in companies like Peabody Energy (BTU) or Alpha Natural Resouces (ANR), there is certainly angst and anxiety about the prospects of a second Obama term. However, the data suggests it's not anything to get too worked up about. Considering the sell off many of these "anti-Democrat" stocks have already experienced one might go as far as to say that their best days just might be ahead of them.
Ironic. Based on the historical data, a second Obama term just might be what these companies (and many others) need. So do we go long energy and pray Team Obama pulls it off! Did I just say that? Not seriously. But maybe I just found a reason to sleep comfortably on November 6th, regardless of the outcome.
Most of us have witnessed unprecedented returns on president Obama's watch. The skeptic in me finds it difficult to believe that if he's granted a second term, the markets will most certainly continue at their current pace. The reality is we've moved up a great deal already, and as a prudent investor I start thinking about defense almost instinctively. So I would start to feather out of deep profits, raise a little cash and look to protect myself with inexpensive out-of-the-money put options that go out a few months (beyond the election). Perception is reality, my friends. The perception that Republicans are better for the economy still dominates the investor class, and I don't care much for statistics anyway.
Disclosure: I am long BTU.