Thursday, 23 April 2009

Politics and the stock market

John Mangun

The other day, I was speaking to a new acquaintance, a man named Bobby. We started talking, as “old men” often do sometimes, about the past. Then we caught up to the present and finally got around wondering about the future.

It never fails, though. At some point in the conversation, any new Filipino friend will make a comment to the effect that there is too much politics in the Philippines, and that is a major problem creator. Perhaps because I am an adopted child of the Philippines, this talk about bad politics comes almost as a Filipino apology of some sort to me.

I have been around this planet and this country long enough to know that the political scene in the Philippines is not much worse than most countries and much, much better than many. At least the Philippines has never had to evacuate foreign heads of state out by helicopter to avoid being trampled by rampaging protestors like they just did in Thailand.

And then when I dare ask the specific question of how Filipino politics has had such a perceived negative effect on the country, the answer never seems to fit with my question. But Filipino politicians are so corrupt, I am told. They say that all I have to do is just look at the elections here.

I hate to be a killjoy about the electoral process, but the recent protests in Thailand were all about ousting the current prime minister who “stole” the last election with the help of the military. And there are people in the USA still whining and complaining about the 2000 and 2004 presidential elections long after the winner has left office. Even two USA Senate races, voted on in November 2008, are still undecided because of alleged vote-padding by the poll workers. Sounds familiar, doesn’t it?

When it comes to corrupt politicians, though, the best example I am told is the “pork barrel” spending of public money to win elections. I hesitate to mention that both the term and practice of the “pork barrel” was invented in the 1870s by the Americans.

Right before the election, the local mayor or congressman would bring the wagon up to the front of the local saloon or bar, and unload a big barrel of salted pork so the boys would have some pulutan to go with their beer and whiskey while deciding who to vote for come election day. I bet politicians can say “pork barrel” in a hundred different languages.

However, I figure that there must be some truth to the idea that politics must have some negative or positive effect on the economy. I am just not sure how to measure that effect. I am a stock-market person, so maybe where I should be looking is at the market-price action as it relates to politics.

In the Philippines, we are probably fortunate that our legislators do not get heavily involved in trying to micro-manage business through legislation like they do in the West. Of course, we do get some attempts at expensive and silly laws that cost everyone money, based on some human global-warming fantasy. And occasionally, politicians with too much spare time and access to the Internet pass laws like the one requiring cell phones to be turned off at gas stations. At least that unwarranted hysteria did not cost us much money and did make some profit for the sign painters.

Perhaps one significant difference between the Philippines and the USA is that politics seems to go on here 365 days a year even when the Congress and Senate are in recess. In the USA, the legislators cannot do any damage to business and the economy when they are out of session and not passing bad laws.

So I did some research on how the Standard & Poor’s (S&P) 500 stock index performed with the US Congress in session and when they were off the job.

Between January 1, 1965, and December 31, 2008, when the US Congress was hard at work, the S&P 500 Index went up at an annualized rate of +0.31 percent. During those times that they were not at “work,” the annualized return was +16.15 percent. Between 2000 and 2008, the “Congress” effect was greater. Down 12.45 percent when in session; up 8.81 percent when they were on the road. The lesson: You won’t make money when Washington DC is running things.

Next year we have a presidential election. What might we expect between now and then?

Ignore the economic news. Forget brilliant stock-market analysis. Just place a big investment on the political process no matter how “bad” you think Philippine politics is.

In 1991, prior to the 1992 Ramos election, the stock market rose nearly 50 percent. Even the 1997 crisis could not stop a good rally prior to the Estrada election. And before May 2004, the market increased by about 15 percent. So it looks like you should follow a variation of that old stock-market formula; buy on the rumor (of the election) and sell on the fact (of who wins).

So buying stocks this year knowing that there will be an election next year will probably be a safe, profitable bet. I am going to say that the next time Bobby tells me that politicians are good for nothing.

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  1. Hi. Are you investing or planning to buy stocks in the Philippine Stock Market with this article you have written? What stocks are you looking at for? Cheers.

  2. Sorry. I do not share specific recommendations publicly. that information is only for my clients.
    john mangun