Enzio's Clock

Background

1. How do "change"Presidents affect markets?

Recently we praised Obama for getting in - but raised some uncomfortable investment thinking. Our catalyst for this was his  bleating about "change" - but labeling his foe a pig who could not be beautified even with lipstick. Funny, I always felt that particularly Americans place value on being "good sports"...maybe things have changed since my days in Eugene, Oregon and in New York City?

But that piece got me thinking: in my own life history, Presidents advocating "change" the most in America were

• Kennedy (1961 - 1963)
• Carter (1977-1981)
• Reagan (1989 - 1989), and
• Clinton 199-2001)

What I mean by "change" is not that they necessarily "changed" anything, but the initial perception of the voting public - indeed, their chief, perceived attraction was one of change.

Here is what I asked: "How did the Dow Jones Industrial Average ("Dow") perform from the start of November until the end of April the following year, during the victor's first term?"

Focusing solely on these four perceived "changers", indexing November with 100, this is how the Dow performed:

December:  105.4

January:     105.8

February:    105.5

March:        105.4

April:          109.8

Interestingly, if I compare this with the market behaviour during all of the election years since 1961, the conclusion is that by April of the following year of their first term, the "all Presidents" group was up by four percent, and the "change" tribe was up by 10% - or by over twice the overall group.

BUT: the risk during this period (November - April) was TWENTY times higher when the "change" tribe took office than when the overall group was voted in.

Thus, the "change" Presidents may have have returned over twice as much as their "no change" colleagues - but at twenty times more risk. Caveat, emptor. 

2.  Obama in "L"

Since his inauguration on 20th November, the market is up by 15%. But since the end of November, it is down by 3%, suggesting that the lipstick may already be starting to fade...

Based on the table above, our hunch is that the market will show timorous firmness until March (hovering around an index of level of 105, per the above table) , and then shoot up in April (have a look at the table above: the March index of 105.5 lurches to an April value of 109.8). This coming April we will re-visit the "sell in May and go away" story. 

So we stick with our "fish on the hot cement sidewalk" analogy and remain strategically short of the market and of the dollar. and certainly are leery of "safe" U.S. government bonds.

3. How to Make Money Off This Idea

1. Always consult your financial adviser first.
2. We remain in SDS:US, the overall U.S. market short ETF, and in SKFL:US, the financial sector short ETF
3. We also remain long of gold (PHAU:LN), the Swiss Franc (FXF:US), and of the yen (FXY:US).
4. We are particularly suspicious of the "safety" of U.S. treasury bonds - all the moreso with 30 years trading at 38% above their redemption value of 100! At some point, these have to get sold off becuase at redemption, Uncle Sam will give you only USD 100 back per bond - NOT USD 138!
5. WE WILL UPDATE OUR ADVICE TRACKER THIS SUNDAY, 28TH, ONCE OUR WEBSITE HAS MIGRATED.
6. HAPPY CHRISTMAS AND A PROSPEROUS INVESTING YEAR DURING 2009: "FORTITUDE" IS KEY.