Low Congressional Ratings, A Bullish Indicator

Today’s good news: Confidence in Congress drops to seven percent, an all-time low.

Let’s give a round of applause to the do-nothing congress for not doing too much. As we wrote before, gridlock and low congressional approval ratings are bullish for stocks and the economy. High approval tends to portend to poor returns. In the graph above, you can see congressional approval made a peak in the early 70’s – just before the oil embargo, a nasty bear market, and nearly a decade of high hyperinflation; it made another peak in the mid 80’s, right before the Black Monday stock market crash; and lastly, it bottomed in the early 90’s recession before the huge bull market that followed. The 90’s were characterized by optimism and we all know how that ended: 911, a nasty stock market crash and recession. Compare that today and we have record high profits & earnings, low valuations, the second strongest bull market in the past fifty years, super-high valuations for tech start-ups that make the 90’s valuations look like a joke, a strong housing market in the Bay Area, and record consumer spending. But to most people, it feels like we’re still in a recession, and they want to blame congress or the rich for falling between the cracks. Congress should do as little as possible, letting the free market run on its own – only to intervene during crisis such as after 911 and in 2008, to undo unnecessary regulation such as Glass–Steagall’s 1999 repeal, to lower taxes, to raise the debt ceiling, and to control entitlement spending such as Clinton’s 1996 welfare reform.

Sometimes, the most enduring recoveries are the ones where the fewest can participate, because once the masses get in the game, it’s soon game over. We saw this in the 90’s when the masses entered tech stocks and again in 2002-2006 when they felt artificially rich with real estate; in both instances, big bad bear markets of over 50% followed. Now that the chumps – those who speculated in homes in the late 2000’s and are still underwater and others that sold their stocks in panic in 2008 – are out of the picture, we can have a protracted bull market built on the most solid foundation of all – one of pessimism and negativity.

In the tailwinds of endless fed money, Ivy League alumni are creating multi-billion dollar tech companies and becoming instantly wealthy in the process. Anyone with some coding and a viral idea can become a millionaire overnight and a billionaire in a couple years. If you cannot code, buy the S&P 500 and buy Bay Area real estate. That’s how you get rich. Silicon Valley VC aficionados are doubling their money every six months in investments like Uber, Snapchat, and Air BnB. A high-IQ wealth orgy that makes the roaring 20’s quaint by comparison. A get-rich-quick frenzy like 1929 or 1999, but this time around there won’t be a bear market or a recession, or at least not for a very long time. Unlike earlier booms, this wealth is not ephemeral and these valuations are sticky and permanently rising. The ownership society Bush spoke about is doing better than ever. This time it’s really different. The new gilded age rages on with no end in sight.