OF ELECTIONS, STOCKS AND FILTHY LIARS
By Ken Fisher
Monday, February 18, 2008.
Imagine Gordon Brown calls for general elections in Britain next week, the Socialist Labour Party sweeps, and Arthur Scargill is Britain's next Prime Minister. Some may like that - their prerogative - but most would fear for British shares.
People believe anti-business politicians will do anti-business things - raise taxes, hinder trade, ratchet regulation - all spelling doom for markets. But they forget - all politicians are liars. Americans, Britons, Zimbabweans - all liars.
In America, the Republican party is akin to the Tories - viewed as free-market loving and business-friendly, whereas the Democrats are like Labour - favouring big government, painting big business as villains.
And most expect a Democrat to be America's next president. Time to panic?
Relax, it's still too early to know what will happen. The Democrats still don't have a candidate! It's possible there's a third-party candidate - anything could happen! But no matter the outcome - you can safely assume the winning liar won't do what he (or she) says.
You know politicians you hate are liars - cannot trust a thing they say! But it's tough accepting the ones you like as liars too. Particularly when they say things you like. Here's how to know when politicians are lying - their mouths are moving. Accept that in your bones, and you see a remarkable pattern that could impact shares this year.
As stated here last September, fourth years of American presidents' terms are good for shares - in US, Britain, and the world. Should we fear an anti-corporate Dem?
Nah - in years we flipped Republican to Democrat - like this year might - US stocks averaged 5.8%. Below average - but still, never a negative year historically. Not great, but not horrendous. Incidentally, Democrat to Republican switches fare much better - averaging 13.2%. Why?
Because Republicans say free market things and markets like it, while Democrats promise to redistribute wealth, which markets hate. But here's the kicker - they're both lying. Republicans have better election years, but shares drop an average 6.6% in the inauguration year when we discover he's a rotten liar. And Democrats have tepid election years but great inauguration years - 20.7% - because thankfully...he's a liar too!
Democrats in the driving seat
Democrats win the presidency often, but seldom big. Since our two-party system kicked off with the first Republican, John Fremont, who lost in 1856 to James Buchanan (both filthy liars), Democrats not named Franklin Roosevelt have won more than 50% of the popular vote only twice (Lyndon Johnson in 1964 and Jimmy Carter in 1976).
Whereas Republicans usually win the popular vote with a big margin. For a Republican to win this year, you'll need to get a sense between now and November that the Republican's making a big break. Otherwise, the Democrat has history on his (or her) side.
Who wins matters - but also how big. The bigger the victory, the better the election-year return, but the worse the following year - the exact inverse. Close races mean tepid returns this year but better returns next.
If a Republican wins big, look for a good 2008 but a poor 2009. If a Democrat wins narrowly, 2008 may be less rosy, but 2009 should be better. Either way, there's not much to fear this year, so profit with stocks like these:
Germany's Fresenius Medical Care is the world's leader in all parts of kidney dialysis, including treatment, equipment and disposables. Operating globally - 2,200 clinics in 27 countries - Fresenius has big market share. Growing moderately but steadily, it looks cheap at 20 times likely 2008 earnings and 1.8 times annual revenue.
Cannot get enough healthcare? Switzerland's Alcon leads the world in eye care - including drugs, diagnostic systems and over-the-counter products. Its growth is steady and will continue as baby boomers age. The company perceives its shares as too cheap at 23 times 2008 earnings, which is why it is buying back $1 billion of them.
Giant America-based insurer AIG is lower than it was one, three, five or even eight years ago - back when it sold for 40 times earnings. Now it is just 8 times earnings and 1.2 times annual revenue. But with an exceptionally strong presence in insurance and broader finance and slow but steady growth, this should be a good one for 2008.
With thanks to Interactive Investors.
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