Congressional Wealth Destruction

Saturday, June 27, 2009
Posted in category Uncategorized

This interview with Eric Singer on FOX Business is great. I had a discussion with Eric this morning, leading me to his fascinating material.

He launched the Congressional Effect Fund that makes investments based on when Congress is on vacation. He has produced studies that show the S&P goes up when Congress is on vacation, and it goes down when Congress is in session. Eric follows the correlations between government intervention and the stock market, including one intervention that is my most hated (because I deal with this daily), Sarbanes-Oxley (SOX). In Investor’s Business Daily, he writes this about SOX:

Sarbanes-Oxley and its amplification by our rapidly growing litigation industry have turned our securities markets upside down.

Historically, private equity had a lower valuation than public equity because the initial investment was discounted based on the belief that some day the company would go public and that first investors would be rewarded for their risk taking and patience.

Now, private equity is available at higher valuations than public equity across certain sectors of the market. The ironic consequence of this “inverted equity curve” is that the guardians of the public markets are discouraging risk taking, diminishing wealth creation and ultimately hurting small investors.Sarbanes-Oxley and its amplification by our rapidly growing litigation industry have turned our securities markets upside down.

Ultimately, the clowns in Congress are violating property and destroying wealth. But they are deemed “public servants.” And, for the most part, the people who are “served” by their crimes are walking around in the fog of the unknown.

Historically, private equity had a lower valuation than public equity because the initial investment was discounted based on the belief that some day the company would go public and that first investors would be rewarded for their risk taking and patience.
Now, private equity is available at higher valuations than public equity across certain sectors of the market. The ironic consequence of this “inverted equity curve” is that the guardians of the public markets are discouraging risk taking, diminishing wealth creation and ultimately hurting small investors.
In the bond market, an inverted yield curve is often a precursor of a recession. An inverted equity curve should be understood in the same light, with potentially greater severity, as its consequences are not fully understood either by regulators or Wall Street. Sarbanes-Oxley and its amplification by our rapidly growing litigation industry have turned our securities markets upside down.
Historically, private equity had a lower valuation than public equity because the initial investment was discounted based on the belief that some day the company would go public and that first investors would be rewarded for their risk taking and patience.
Now, private equity is available at higher valuations than public equity across certain sectors of the market. The ironic consequence of this “inverted equity curve” is that the guardians of the public markets are discouraging risk taking, diminishing wealth creation and ultimately hurting small investors.
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4 Responses to Congressional Wealth Destruction

  1. clark says:

    June 28th, 2009 at 2:15 am

    The f$%^, now you’re catching up. The gov’t is against us. Whatever they do is contrary to our best interest. When you say they are walking around in a fog, what you’re saying is, “the roof’s on fire,… burn mf’er,… burn!” Tis our new national aNTHEM! Of course no one wants to acknowledge such, as it were. But it’s true. From here on out, whatever is exactly opposite of our best interest, that’s what, “they” will do.
    Smooth words, comforting sounding as what we’ve heard in the past is all we’ll hear from here on out. A discouraging word we’ll not acknowledge, none shall we hear as we only want the soothing words that say we’ll get to keep what we have and things shall go on as they always have…
    Nothing shall change except what we want changed… as we delude ourselves… our military shall shoot everything that threatens to change what we think shall be our immediate future and damn the torpedoes.
    “Burn mf’er, burn!”
    But, what about love?
    Tina?

  2. clark says:

    June 28th, 2009 at 2:18 am

    ooo, wow, no moderation? Turn me on. I feel some freedom. A breath of fresh air.

  3. Karen De Coster says:

    June 28th, 2009 at 8:13 am

    Clark — remember, there’s no ‘freedom’ of anything on others’ private property. Unless the owner allows. :–)

  4. TCO says:

    June 28th, 2009 at 10:18 am

    It’s cute, but not showint what you think it is. Stock prices impute the future value of all cash flows. They rise or fall based on the prescense of new information Therefore stocks do not go up or down based on Congress being in session since that is scheduled. I do think that government intervnetion is being priced into the market right now and it is highly negative. Also, that consumers are rationally not spending because of the same pricing in effect. But you’r not going to see a sin curve following Congress vacations. That’s ignorant of markets.

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