Saturday, September 15, 2012

Stock Market: Election Year? So What?

There is much ado about the U.S. presidential election in November. But, being a long term investor, I don`t care.

One of the reasons that I stay calm and invested in the stock market is Bill Clinton. I cannot stand him, but during his presidency one of the greatest bull markets in history happened. And the left-wing president Franklin D. Roosevelt had an even stronger stock market rally ( I wouldn`t vote for the current U.S. president (I`m not a US citizen), but as an investor I cannot complain about him. Since his inauguration the Dow Jones gained more than 70%.

I don´t believe that these politicians fathered the huge stock market gains. Instead I think that they just had good luck and benefitted from a strong and/or reviving global economy during their presidencies.

Anyway, the power of any president is limited by the highly complicated political structure in the U.S., called "checks and balances " (wikipedia this is described for instance in this book: "The American Presidency: A Very Short Introduction", by Charles O. Jones ). Whatever a  president intends, he has to deal with the Congress and the Senate. The political process gives the opposition a lot of possibilities to intervene and weaken his policy. 

But even if a president can enforce his plans, his political weapons, meaning taxes, government expenses, international trade policy & competition policing, are just part of the game. In the short run - which could be only 4 years, as long as an election period - monetary policy has more impact.

These days you can witness again the power of Ben Bernanke and the Federal Open Market Committee, who don`t have to follow orders from the president. The global recovery since the spring of 2009 wouldn`t have happened without the aggressive expansionary monetary policy in the US and Europe.

Furthermore. Being a long term investor I`m calculating with a time horizon which is longer than a possible second regency:

1. In the long run, stock prices rise which the advance of the Dow Jones has shown since its start  (wikipedia

2. We are experiencing now an exciting era with a lot of technological revolutions including robotics, 3-D-printers, mobile internet, tablet computers, bioengineering and much more which should create a lot of wealth in the ongoing decade and could rekindle the sluggish growth of the global economy. 

3. A company strategy needs time and usually plays out over many years as we can see with market leaders like IBM, Apple, Amazon and other successful companies.

The power of any president also is dwarfed by globalization. The U.S. is just a part of a world which is increasingly influenced by emerging markets.  U.S. companies which are part of the S&P 500 are mostly global (multinationals) and gain a large and increasing part of their revenues and profits from foreign markets.

I am therefore prepared to get through the temporary turbulences the approaching election may cause.

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