Eric T. Singer - Trade the Congressional Effect: How To Profit from Congresss Impact on the Stock Market

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Copyright 2012 by Eric T. Singer. All rights reserved.

Published by John Wiley & Sons, Inc., Hoboken, New Jersey.

Published simultaneously in Canada.

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Library of Congress Cataloging-in-Publication Data:

Singer, Eric.

Trade the Congressional effect : how to profit from Congress's impact on the stock market / Eric Singer.

p. cm. (Wiley trading series)

Includes bibliographical references and index.

ISBN 978-1-118-36243-3 (cloth); ISBN 978-1-118-42046-1 (ebk); ISBN 978-1-118-43436-9 (ebk); ISBN 978-1-118-41709-6 (ebk)

1. StocksPricesUnited States. 2. InvestmentsUnited States. 3. Portfolio managementUnited States. 4. United States. Congress. I. Title.

HG4915.S56 2012

332.63220973dc23

2012022655

To my loving wife, Aet, so beautiful, so patient, so wise.

Acknowledgments

I want to thank everyone who encouraged me and helped make this book a reality. To my son Brett for his day-to-day help, thank you. To my daughter Jamie for her encouragement, thank you as well. Carol Mann heard about this book for years and represented me well when the time came. But for Amity Shlaes's encouragement and suggestions, I probably would not have started. Robert Asahina helped me to frame the project and take the critical first steps. To Joe Steinberg, thank you for being a true friend. That goes for you, too, Robert Harow. Many friends and colleagues read it and/or generously shared their thoughts or help on the project, including Charles Pradilla, Brett Joshpe, Chris Anci, David Berkowitz, Adam Steinberg, Clyde White, Ira Stoll, Tresa Veitia, Diego Veitia, Ted Weisberg, Jon Frank, Morgan Frank, Matt Pilkington, Dana Rubin, Walter Molofsky, Shane Burn, John Regan, Brian Saroken, Jeff Skinner, Matt Chambers, Dave Ganley, Eric Frenchman, Bob Cresci, Sam Solomon, Dan Ripp, Andrew Gundlach, Paul Zaykowski, Joe Ancona, Elisabeth Richter, Walter Robertson, Joe Plummer, Sterling Terrell, Matt Pilkington, and Wes Mann. I'd also like to thank my interns for their help on this project. I hope they choose America over Singapore. No acknowledgment would be complete without thanking my father and mother, who gave me a great education. Finally, I would like to thank Pamela van Giessen, Evan Burton, and Emilie Herman for believing in this book, and giving me the chance to publish it through John Wiley & Sons, Inc.

Introduction

Government is not reason, it is not eloquence. It is a force. Like fire it is adangerous servant and a fearful master, never for a moment should it be left to irresponsible action.

George Washington

Government is not the solution to our problemGovernment is the problem.

Ronald Reagan

Who would have thought in the 1990s that by the end of 2011 we Americans would have had a lost decade in which our investments were shattered, our equity in homes would disappear, our 401(k)s would be cut in half, and our stature as the preeminent economy of the world would increasingly be called into doubt? The convulsions of the past decade have resulted in economic and social setbacks of epic proportions. Our standard economic remedies have been tried and tried again, but now seem impotent against the giant new challenges facing us.

We have arrived at this surprisingly desperate moment after 100 years of slow but relentless growth inand dysfunctionality ofgovernment in general, and Congress in particular. Our politicians have engaged in magical thinking for so long that the magic is gone. They actually believe they can, like Harry Potter, speak incantations and create jobs and prosperity for everyone. But unlike Hollywood special effects, there are no economic or political spells that can dispel our troubles. We are in a mess caused by our own willful abandonment of our core principles. The remedies we used to believe in no longer work.

The public already knows something is very wrong but can't quite put its finger on what it is or, especially, what to do about it. As of February 2012, Congress's approval rating is 10 percent, according a Gallup survey, below its former all-time low in the crisis of October 2008, when the equity markets were plunging, on their way to a frighteningly sudden 50 percent loss in less than nine months. In fact, out of 16 major institutions, such as the military, the police, and so on, Congress now ranks dead last.