Earlier this week, I got together with Eric Singer, head of the Congressional Effect Fund
You run a fund that trades stocks only when Congress isn’t in session. Can you talk about why that is?
Yes, I call it the Congressional Effect Fund. The reason for that is that stocks do much better when Congress is on vacation. You know I wrote about this in the early 90′s and the Congressional effect has only gotten more exaggerated over the last 10 years as government has gotten bigger.
If you go back over the last 10 years, the market goes up on average about eight percent annually on days that they’re on vacation, and down eight percent annually on days that they’re in session. If you go back 45 years to 1965, that is when my data base starts.
The market goes up 16 percent annually when they’re on vacation and about one percent annually when they’re in session. It’s a big difference and the reason for it is that when they think about passing a new law, it’s usually bad for the industry that’s going to get tighter regulation and stocks in that industry either go down or have to pause while the market figures out whether it’s good or bad for the industry.
Now obviously a lot of people are going to be aware that stocks do better when Congress isn’t in session, if only from hearing you talk about it. So how come there aren’t dozens of funds doing this?
I have a bottle of champagne on ice cooling waiting for the first guy that wants to copy me publicly because I think that other funds are going to wait and see if this develops into anything before they copy it. Some day I hope they will.
In the late 80′s there was a mutual fund called Dogs of the Dow and Dogs of the Dow, he had an even simpler life than I do. On January 1st, he’d get out a pencil, and he’d find out the 10 stocks that did the worst in the Dow and then he’d buy those stocks on the theory that they would do better than the other guys next year. Ultimately there was $5 billion that traded just using Dogs of the Dow and variations on it. I think a hundred billion could be traded this way without it really upsetting the market. So, I hope someday that people will copy me.
Now I took a look at an article posting your fund’s numbers, and it looks like the numbers were good except for a run during the 90′s. What happened then?
The approach usually works, but it doesn’t always work. …On a relative basis you would have underperformed the market in the late 90′s. Last year was a very bullish year. The funds sharply underperformed the rest of the broad market.
But when, you know, look at my record from the time I opened, anybody that invested with me when I opened in May of 2008 has a profit. And in fact not many fund holders actually have a profit from 2008. My goal for the fund is to beat or match the market over time, while taking less risks.
Now, you recently wrote an article for Investor’s Business Daily that essentially said the economic picture still looks pretty dismal for small businesses. Why is that?
I think that if you’re Apple and you brought out a new product that’s captured everybody’s imagination, you can have fairly good sales in the United States, but in the emerging markets in Asia, they’re moving to freedom while we’re moving away from it. Those markets, in some cases, are roaring. So large companies get a chance to sell a lot of goods in Asia where spirits are buoyant, they have a lot of growth, and the small businessman can’t. He’s not global in the same way usually. So what he knows is that he’s working in an economy where gasoline is three bucks a gallon, a lot of people are still in deep distress and I’m quite concerned about it.
I think the employment picture is going to be dark for quite some time. This could be a recovery where the large companies can show some very good earnings growth. The little guy can’t. And you know we’re going to wind up with a society where the have and have not’s actually get further apart.
Now overall do you think the legislation pursued by the Obama Administration and the Democrats in Congress has been good for America’s economy overall or not?
Well, the way I prefer to look at that is on a short term basis and a long term basis. On a short term basis, you know there are some merits to it. On a long term basis I think most of the legislation has been horrible. In particular, on health care, both on a short term basis and a long term basis, I think that legislation is in particularly horrible….
Eric, I really appreciate your time.
Thanks for your time. I hope we get to do it again.