Saturday, November 13, 2010

Exclusive Interview with Ken Fisher Part 5 - Where the Market is Going after the Election

Ken Fisher is a money manager, and on the list of the Forbes 400 Richest Americans. He is also a Forbes columnist, where he recently recommended several income stocks, such as TransCanada (TRP), Repsol (REP), and Sanofi-Aventis (SNY). His latest book, Debunkery: Learn It, Do It, and Profit from It-Seeing Through Wall Street's Money-Killing Myths was just published. He is also author of several other books, including The Ten Roads to Riches: The Ways the Wealthy Got There (And How You Can Too!) and How to Smell a Rat: The Five Signs of Financial Fraud

Ken Fisher Interview Part 5
Please note: Interview took place on Wednesday, October 27, 2010

Bunk number 40 actually surprised me. This is the one about 'Presidential term cycles are voodoo.' I would have thought that this would have been a typical bunk that wouldn't really have patterns.

You think it would be something like the Super Bowl indicator?

Yes. That's what I would have thought and I think a lot of readers would have thought so.

I think most people's reaction is that's what it is. Most people's reaction is something like what you articulated, and I'm just going to make a series of points. One of the points which is actually in here which is coming right at us, not only are the data on page 154 and 175 about the third year president's term true, but the history of twelve months after a mid-term election is positive, not just the year but down to the six months. All are positive, some more positive, some less positive.

I believe what happens based on my analysis of political processes is, I spent a lot of time analyzing this and I think I know what I'm doing, is that the president that I've described in this pushes his most onerous legislation in the first and second year of his term because he knows that his party almost always, this is relative power of the opposition in the mid-term which is exactly what's going to happen six days from now [ed. note: interview was Oct. 27], and he knows he won't be able to do later, so he does and the more he does it, the more his party loses power to the opposition party in the mid-term.

This is a pattern that we do over and over again that we never seem to fully recognize. There are very few exceptions to it in history and presidents feel lucky when they get those exceptions. In the first two years when we do all that heavy legislation, the people don't recognize this because of the way liberals and conservatives think is similar is just opposite. They think that whatever he passed that they want to do is what's right, but what they miss is anything you legislate, other than platitude statements, is taking from somebody to give to somebody else in some way, One of the lessons of behavioral finance is that the average American hates a loss two and a half times as the love a gain, so when you take from these to give to those, the people you take from hate it more than the people you give to like it, and everybody else fears you are going to come and get them next.

So when we do that politically, which is in the first and second year of presidents' terms, the process of what could be referred to a political risk aversion rises, and when political risk aversion rise, total risk aversion rises, and you get more market-bad times. On the other hand, between about June of the second year of the president's term and September of the third year of the presidents term, political risk aversion in America in a predictable way goes from an all time highest level in the four year cycle to its all time lowest lever in the four year cycle. As that political risk aversion falls to the floor, total risk aversion has a tendency to fall.

So if you take this year, the one flavor where you have a Democratic President and Congress, you saw legislation that you know about. You had all kinds of people that didn't like that squealing like stuffed pigs, how terrible it is, how the world's going to hell, how Obama is a socialist, and, and, and, and, and. From their viewpoint, that all makes sense. But they don't fully appreciate that that stuff ended. It's over. When I say it's over, were going to have effectively the equivalent of a hung parliament. The only things they are going to pass after this election are things that have very broad agreement, and there's not that much of that. So the takes from these to those is completely over.

Therefore, political risk aversion is over, and when political risk aversion falls, total risk aversion falls, the market's going to do better than not. That's what's behind that cycle. The key, as I said in my The Only Three Questions book, to recognizing a pattern is a bunk like the Super Bowl indicator or whether it's something real is to actually come up with an underlying economic mechanism that drives something that relates to either the economy or markets.

In this case, it's simply, presidents are really good at elective politics, that's how you become president. If you are not good at elective politics, you don't become president, and they know what happens with mid-term elections. When President Obama got elected, he know that he had two years to get things to Congress so if he couldn't get them through in the first two years, he's never going to get them through in the back two years, so he rammed a lot of stuff through and he did that rather successfully. He got a lot of stuff through but not a much as he wanted to, but he still got a lot of stuff through, and made a lot of people hate it, made a lot of people upset, and increased political risk aversion. But now that's going away.

We did predict last year, that basically we would get the election outcome approximately that we are going to get next week, which is a Congress that can't do anything. I'm always amazed that because so many people are so interested in politics, they don't seem to be able to see the forest from the trees.

End of Part 5

The Debunkery book is available at Amazon.

Ken Fisher obviously doesn't give individual stock recommendations in his interviews, but some stocks he likes that were mentioned in his recent Forbes columns, including high dividend stocks, are available in the form of a free Excel list at

Part 1 of this interview is available HERE.

Part 2 of this interview is available HERE.

Part 3 of this interview is available HERE.

Part 4 of this interview is available HERE.

By Fred Fuld at

Disclosure: Interviewer doesn't own any of the stocks mentioned in this interview series at the time the articles were written.

Copyright 2010. All rights reserved. Reproduction of this interview prohibited without permission. All opinions are those of Ken Fisher, and do not represent the opinions of or the interviewer. Neither Stockerblog nor the interviewer nor the interviewee are rendering tax, legal, or investment advice in this interview. If you want tax, legal, or investment advice, contact the appropriate professional.

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