Click to enlarge
Chart
Source: The Chart Store via All Star Charts

 

We have not looked at the Presidential Cycle in some time (See this, this and this from 2005).

Regardless, it is something that people often fail to contextualize correctly: What the chart above shows is the historical average of the 4 year presidential cycle.

The caveats about these are they reveal a form of soft probability, and not forecasts. If second years have often been historically weak, that is not the same as saying second years are ALWAYS historically weak. At best, it might reveal a tendency.

The causation element is usually described thusly: Presidents want to get re-elected (or see their party keep he White House). So they do all of the unpleasant things which might hurt over the short term but should lead to positive economic gains by the next presidential election year.

 

Category: Cycles, Investing, Politics, Technical Analysis

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

5 Responses to “Year 2 in 4 Year Presidential Cycle”

  1. VennData says:

    I can see the oddly-dressed tourists camera-toting looking a the city map at the downtown kiosk, nodding, pointing at it, cross referencing to their own map.

    My question is, why on earth is anybody holding onto medium-to-long-term bonds? Because some guy on CNBC told them too? Rick Santelli? Zero Hedge? What credibility do any of these people have? What track record? Yet you’re listening to them and getting shellacked every day bright and early at 7:00AM CST?

    The yield on the ten year has almost doubled in less than a season and you’re just sitting there?

    Let me guess, this Is what you did during the dot com bust? Held onto to your vacation hom in ’07 too, right?

    What an earth makes you think you should be managing assets? What non-correlated event in your life have you mistakenly used to say: “By God, I’m holding onto those bonds.”

    You are out-of-control loony. You should be committing yourself. You’re hanging on after a THIRTY YEAR-plus bull run. Do you read? Do you have private quiet time to contemplate? Are you eating enough brain food?

    Who are you soothsayers of self destruction?

    • DismalEconomist says:

      “Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.”

      It’s good that you made sure to check all of the boxes on Barry’s list of how to comment on his posts. You totally nailed it!

  2. DismalEconomist says:

    Look no further than the Kalecki profit equation to understand why this is the case:

    Profits = Capitalist Consumption + Investment + Government Deficit + Net Exports – Worker’s Savings

    Unpopular deficit reducing policies are done in the early years such as the expiry of the payroll tax holiday, implementation of the sequester, increase of top marginal tax rate as Bush cuts expire, and the long term jobless reaching the end of extended unemployment benefits. All of these decrease the government deficit portion of the profit equation. It very accurately explains why corporate profits rebounded so fast in 2009. Currently a decline in savings and a pick up in investment and perhaps a somewhat smaller trade deficit are providing corporate profit support, but a falling deficit is definitely a fiscal drag on total earnings. I’m willing to bet we see deficits increase later in the presidential cycle as an increase spending or tax cuts are used to win favor with voters.

  3. constantnormal says:

    “… the caveats about these are they reveal a form of soft probability …”

    And that’s why a composite data line like this should be shown overlaying a scatter plot of all the data points that went into it, making clear that these numbers are NOT precise, and even going so far as to show areas where they may be relied upon more than others — for instance, if we have a dense clustering of data points within a few percent of that second-year flat-line and had a thousand years of election cycle data to firmly establish any real trends, then one might want to pay some serious attention to it in one’s financial planning … but with at most fifty-some election cycles, and let’s say that only half of those are two-termers, then we are talking about a dataset comprising maybe 12-13 two-term instances.

    “Probability” is really a stretch, when using that small a number of examples to draw the lines that purport to connect two things as complex as stock markets and politics …

    But it does make for some nice talking points, and the discussion might well churn up some significant logic … and I’d really like to see that scatter plot, just to see how much noise there is in the picture …

  4. rd says:

    Another cyclical compnent will be the nomination fo a new Fed Chair. New Fed Chairs often have to prove they are tough and won’t be inflationary wimps. The set-up this time is very weird though, so who knows how that transition will play out.