Next Year Is The Sweet Spot

Published in Investing on 10 November 2010

Our monthly round-up of the best quotes from the financial world.

With the Democrats in the US taking a 'shellacking' in last week's mid-term elections, Ken Fisher has done some research on the performance of the stock market in relation to the electoral cycle:

"It's been in the interest of the Republicans running for office to talk down the economy. That goes away immediately after the election. Come June, you'll see how quiet the political landscape will be -- very little legislation and a lot of baby kissing."

Noting that share prices have registered average gains of 11% in the third year of US presidencies, and haven't fallen in the third year of a US presidency since 1939, he concludes:

"Next year is the sweet spot. Most political risk aversion occurs in the first year when the president has the most relative power to the opposition party he will ever have. He tries to get through whatever his toughest bills would be, and that freaks people out."

Putting it in numbers, Fisher thinks the US market could rally as much as 16% in the next six months. His latest book, Debunkery, is due to be published next week.

Bill Miller of Legg Mason Capital Management seems to broadly agree with Fisher, and argues that some of the biggest high-quality US firms are as cheap as they've been since 1951:

"I'd be surprised if the market isn't up 20% in the next 12 months", Miller said on CNBC's Squawk Box. "The Fed is going to put more liquidity into the economy."

At the other end of the spectrum

Jim Rogers was in fine form again this month, apparently reviving the old Groucho Marx policy "I don't care to belong to any club that will have me as a member":

"The dollar is so low right now, and there are so many bears on the dollar, including me, that I would expect the dollar to rally for a while … Obviously if the dollar is rallying for a while, the opposite is probably going to be true of gold … everybody's bullish on gold too -- you read the surveys, 95-98% of the people in the world are bullish on gold. That's never good for any asset, no matter what it is. I own gold, I'm not selling gold, but I certainly wouldn't buy it now, not with 97% of the people in the world bullish."

Currencies and China

And while Rogers is often critical of US Treasury Secretary Tim Geithner (and just about everyone else in power), it was interesting to hear Geithner singing some verses from the Jim Rogers hymn book:

"The United States of America, and no country around the world, can devalue its way to prosperity, to competitiveness -- it is not a viable feasible strategy and we will not engage in it."

Questioning the idea that a stronger Chinese yuan would see a resurgence of price-sensitive manufacturing in the West, Chris Dillow at the Investors Chronicle gave us an elegant lesson in thermodynamics:

"If a man has been hit by a bus, you do not restore him to life by reversing the bus."

Hedge fund boss Jim Chanos has also had China on his mind, and has been voicing his concerns about that country's property boom:

"They're on a treadmill to Hell, and they can't get off it … It's a simple property boom: it's Dubai, it's Miami. It's insane what's going on. Only 2-3 per cent of the population can afford to live in these buildings. And it's not just in Beijing and Shanghai. It's happening in the so-called tier two and tier three cities, too."

Sounds almost like a certain home-grown hedge fund boss ...

… Obligatory Hugh Hendry section

Hugh Hendry's contribution to BBC's recent Question Time was pleasingly unorthodox, if not particularly quote-worthy, so for this month's Hendry Corner I had to look to his interview with German newspaper Süddeutsche Zeitung.

Replying to a seemingly incredulous interviewer's challenge that the euro is more than just a currency, and that it stands for a united Europe, Hendry replied:

"Ideas are luxuries. As long as the economy runs well, we can afford [political] ideas … After Soros's intervention, the UK left the European Monetary Union and the country recovered again. And why did we go through all that [15% interest rates]? Because the politicians had vision. To Hell with vision!

As you might expect, the few readers' comments at the end of that piece were invariable critical.

Random round-up

Finally, some assorted quotes from the past weeks:

"There's nothing like a set of accounts and a set of accountants to make it completely unobvious what is happening", Angela Knight, Chief Executive of the British Bankers' Association.

"Of all the many ways of organising banking, the worst is the one we have today", Mervyn King, Governor of the Bank of England, who criticised the Basle 3 rules as too soft.

And the last word this month goes to Jack Bogle, on the subject of asset allocation and foreign (from a US perspective) investing:

"Each nation has its own kind of idiosyncrasies. Great Britain is in poorer shape than the US. Japan seems still to be in the same troubled shape it was in almost two decades ago now. They have never recovered from that big boom. So I'd say I don't do it. If you have to do it, limit international to 20% of your portfolio, maybe half in emerging markets and half in developed."

More from Padraig O'Hannelly:

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BarrenFluffit 10 Nov 2010 , 2:40pm

Clearly Bogle isn't japanese; an 80% exposure to japan would have been no fun at all.

Jim Rogers sounds very skilled at having his cake and eating it. Promising for a second career in PR.

roy345 10 Nov 2010 , 6:36pm

Gridlock is here. So glad the elections are behind us.

pricefacehandsom 10 Nov 2010 , 6:40pm

That which doesn't kill us makes us stronger. -- Friedrich Nietzche

ericking32 10 Nov 2010 , 6:43pm

The only thing that saves us from bureaucracy is its inefficiency.--Eugene McCarthy

todinNYC123 10 Nov 2010 , 6:50pm

All this quoting is making my head swim. I need clear direction

broncos987 10 Nov 2010 , 6:53pm

Speaking of Beijing and Shanghai – great cities for food. Yum.

Splenda123 10 Nov 2010 , 7:00pm

Groucho Marx – hilarious.

11Jets 10 Nov 2010 , 11:30pm

Can you imagine Geithner singing karaoke? Oh my.

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