“I’m out here studying what appears to be an epidemic of arrested development in the American Dream,” wrote Hunter S. Thompson from San Francisco to a New York Editor in the mid-1960s.
Fifty years later the effects of this epidemic have spread their ails across the entire American landscape. You can hardly peer about without evidence of the rampant degeneration – be it lack of manners or people too large for their sweat pants – lacerating your eyeballs.
There’s not much you can do to stop it. But you don’t have to be part of it. What’s more, there are ways you can make the best of it.
Today’s insights are for the patient and shrewd individual. If you are one among these few and far between fellows you’ll delight – and prosper – from what follows. And even if you can’t hold on to a buck, for fear it’ll burn your fingers, you may somehow find it within yourself to exploit this clever and elegant opportunity.
You only live once. Why not dare to do something that’s both fun and profitable…and a little subversive?
Obviously, there are plenty of people out there who get paid by politicians. These payments come in the form of entitlement programs and transfer payments. This is how politicians buy votes.
How to get more handouts from the government is not what today’s opportunity is at all. Rather, what you’re about to discover is a simple way you can stick it to the politicians and transfer the money they receive from campaign donors and lobbyists to your bank account.
But before we get right to it we’ll offer a few words on the presidential election cycle theory…
The Presidential Election Cycle Theory
According to the presidential election cycle theory developed by Yale Hirsch, the stock market follows, on average, a four-year pattern that corresponds to the four-year election cycle. The first two years of a presidency are characterized by relatively weak performance in the stock market. The third year, or the year prior to election year is the strongest for the stock market, and the fourth year (election year) the stock market tends to be above average.
Certainly, this sounds like a nice concept. It’s congruent and easy to understand. But does the theory actually hold water?
As noted by Forbes, “A study published by the National University of Singapore in January 2007 entitled Mapping the Presidential Election Cycle in the U.S. Stock Market by Wing-Keung Wong and Michael McAleer found that ‘there were statistically significant presidential election cycles in the U.S. stock market during the greater part of the last four decades…stock prices decreased by a significant amount in the second year and then increased by a statistically significant amount in the third year of the presidential election cycle.”’
So, according to the presidential election cycle theory, 2015 should be a solid year for stock returns and 2016 should be above average. Make of it what you will…
Here at the Economic Prism, in May 2015, we’re more concerned about the Shiller’s Cyclically Adjusted Price Earnings (CAPE) ratio being at 27.3. That’s 65 percent higher than the CAPE’s long-term historical average. In other words, current market valuations present significant risks to the presidential election cycle theory.
But regardless of if the presidential election cycle theory does or doesn’t hold up for 2015-2016, there are other factors that will significantly influence certain pockets of the stock market. Identifying these pockets now, and investing in them, could result in substantial returns. Here’s what we mean…
Get Paid by Politicians
The sad fact is that in today’s democracy, the candidate that promises the most goodies to the most people wins. These promises apply both ways. There are the promises the politicians make to the voters to lower taxes, increase entitlements, and to kiss every booboo and make it better. There are also the promises the politicians make to corporations, special interests, and lobbyists to tilt the world in their favor in exchange for campaign contributions.
Today’s opportunity is centered on these campaign contributions. In particular, it’s centered on how they are spent…and how you can transfer the money presidential candidates receive from campaign donors and lobbyists to your bank account.
For presidential candidates there’s one rule to the game that overrules all others…and it’s real simple. He, or she, who spends the most wins. Thus raising money and spending it is critical to getting elected.
During the 2008 presidential campaign, candidates spent a combined $630.8 million on media. Yet that was nothing. In 2012, they spend $763.5 million…a 21 percent increase in just one election cycle.
You can bet, in 2016 presidential candidates will spend even more. Perhaps a combined total over $1 billion will be spent on media advertising. Here’s how you can capitalize on this…
Broadcast and cable companies stand to receive a massive boost in ad revenues through the election in November 2016. Disney (NYSE: DIS), Comcast (NASDAQ: CMCSA), and News Corp (NASDAQ: NWS) could all garner record earnings as the third and fourth quarters of 2016 close.
Although these stocks should get a fantastic push from the massive tidal wave of campaign spending that’ll be directed towards them, we believe patience will be rewarded most. Investing is often not what you buy…but when. At the moment, as far as we can tell, valuations are at historic highs.
The shrewd are not buying stocks just yet. They are building cash reserves. Then, when the looming shakeout inevitably hits, they will be making strategic stock purchasing. Media companies set to benefit from the presidential election campaign will be on their target list. You should consider them too.
Sincerely,
MN Gordon
for Economic Prism
