Macbeth and Mirrorballs

Macbeth is Shakespeare's shortest play, allegedly his most cursed, and perhaps his most instructive for politicians. Forget Julius Caesar—crashingly dull. Macbeth is fast-paced political drama. Ambition. Corruption. Murder. A drunk gatekeeper. Swap out witches for lobbyists divining the future in a swamp, and it's not Scotland—it's modern day DC. And, more often than not, a political campaign is a tale told by an idiot, full of sound and fury, signifying nothing.

Enter health care reform, stage right. Birnam Wood is marching into Dunsinane, overwhelming town halls to demand health care not be run like the post office. And, suddenly, the White House changes its tune. Public option? Just a tiny sliver of the plan—we may very well lose it. It appears a bill without a public option likely won't pass the House, but a bill with a public option won't pass the Senate. Stalemate! Unlike Macbeth's hallucination of walking trees, this is a pleasant harbinger for stocks.

Prithee, how? Politicians like nothing so much as keeping their jobs. They know once elected, their base will likely hold their noses and vote for them again, no matter what. It's Independents that matter. So politicians may talk big to win campaign contributions, but are moderate in practice to not annoy swing voters—perhaps by making a big show of "crossing party lines" to vote for (or sign) legislation that makes the base see red. But more often, it can mean intentionally doing the sound and fury that eventually signifies nothing. So, while pols thunder away, assigning blame for who derailed what, this bill-gone-wobbly is nothing more than typical first-year politics—a great thing when the president is a Democrat. 

Over time, when measured correctly, neither party is materially better for stocks. But there are finite periods when Republican presidents tend to have better returns, and others when Democrats beat. Just so happens, historically, stocks during election years prefer a Republican win. The market tends to buy the stereotype Republicans are more business-friendly and Democrats more hostile. So election years when power switches blue to red, stocks rejoice, rising an average 13.2%. But stocks are more glum with the reverse—election years won by Democrats average just 5.8%.

But inaugural years, like 2009, favor a Dem. Why? Because four minutes after changing the White House locks, the new president becomes a campaigning politician. No one wants to irritate swing voters, so the backpedaling begins. The Democrat is less business-hostile, and the market is relieved—returning an average 18.9% the first year of a first-term Dem. And, all positive, save Carter's -7.2%. Perhaps he failed to moderate. After all, he was a one-termer. Politicians hate that. Conversely, the Republican is actually less business-friendly than billed, and the market slumps, falling an average 6.6%. 

This is true for presidents, and also Congress. Those in relatively safe seats can polarize all they like, but freshmen and swing staters know they must moderate—or face not using the House jets come 2011. (Fly commercial? Perish the thought.)

So the public option was done in (most likely) not by bold new proposals, but waffling pols fearful of gathering crowds (also known as "voting constituents"). What of the rest of the bill? Having read HR 3200 (not the entire thing, yet—my tortured Beltwayese-to-English decoder ring is on the fritz—but certainly more than most of our elected officials), it seems without the public option, we're left with some relatively trifling shuffling and the off-topic oddities that populate every bill—like guaranteed coverage for marriage counseling. In other words, not the major redistribution the market had feared. Stocks, it seems, are already starting to cheer. 

Forget the Scottish play. For all his anguished late-night vacillating, Macbeth still took decisive action. (Or at least let his wife finish the job.) No, today's politicians can learn more from Dancing With the Stars, where skill and substance matter much less than appealing to the most folks. Hence, we musn't mock former Majority Leader Tom DeLay when he suits up in satin and sequins this September in a bid to win the mirror-ball trophy. Rather, stand in awe of his political savvy. Also, his requisite spray tan.

Source: Global Financial Data