Political Instability and Investing

Market pundits today like to throw out “political instability” as a reason for market volatility and turmoil. A common theme today, with markets at all time highs, is that the market is wrong because they aren’t pricing in the political instability enough. That is bullshit.

I’m not that old, but I’m old enough to remember when Bill Clinton was impeached. Talk about political instability. Even though it was toward the end of his second term I can’t think of anything more earth shaking than the impeachment trial of a US President. Surely the market got rocked during that time as we all wondered what would become of us.

Surprise! The market did not get rocked. It actually did quite well. How is that possible? Why didn’t the market price in political instability? Was everybody on Wall Street just a bunch of idiots? Did they bury their heads in the sand?

In late 1997, Bill Clinton was facing a lawsuit over the affair with Monica Lewinsky. The S&P 500 was trading around 1,400 at that point.

In August of 1998 when Bill Clinton testified, the market dropped back down to the 1,400 range after trading into the 1,700s in June. AHA! Political instability in full effect!

On January 7th, 1999, impeachment proceedings were begun in the Senate. The S&P 500 was in the 1,900 area. Five weeks later President Clinton was impeached, the S&P was in the 1,800s.

In December of 1999 the S&P touched into the 2,100 range. The market didn’t touch back into the 1,400 area until the country was in the recession and the tech-bubble burst.

Many will say that this was the period of “Irrational Exuberance.” Indeed it was, but that is just another narrative. A United States President was impeached and markets barely sneezed. Today’s narrative of political instability being thrown around like a beach ball is just another worthless story.

The market, and those who make it by participating, don’t care who is president all that much or even what is going in the world of politics. All that really matters is that you save and invest more than you spend, if you can do that with some level of discipline you will do well. Just take a look at a 50 year chart, without dates, and tell me when Kent State happened on the chart, or 9/11, or Panama, or Grenada, or Flight 800, or the other dozens of moments of political instability, I bet you can’t.