It’s not every day that I acknowledge a profound debt of gratitude to the inimitable Ken Fisher, the chief executive of Fisher Investments, who writes periodically in the Financial Times about all things transatlantic.
I suppose it’s probably the sunny Fisher grin and the annoyingly perma-bull approach to life that grates slightly on a poor jealous Englishman stuck in Wiltshire on a grey day in March. But the other weekend Mr Fisher came up with something that made me properly sit up and take notice. In fact, I’m still trying to work out now whether he’s onto something eternally profound, or just a long run of historical coincidences? You decide.
We are getting our venerable English knickers in a proper twist, Mr Fisher said (I paraphrase him slightly), about the dire financial prospects that are likely to arise from the forthcoming election. It currently seems next to impossible that any of the major parties can hope to form a government without having to sacrifice its bold autonomy to some sort of a messy coalition that will stop it from doing anything decisive.
Lessons from History
And that will be just terrible for stocks. Won’t it? Actually, says Mr Fisher, no it won’t. The markets only think that they hate an indecisive government with no scope for bold innovation. In practice, they absolutely love it. And history provides an endless sequence of incredibly profitable stock market runs that have happened during periods of political gridlock.
There was the infamous Lib/Lab pact of 1977-79, which saw a 60% resurgence in the Footsie. There was the awful second Clinton term in the late 1990s, when a powerless Democrat President presided not just over a Republican Congress, but also over one of history’s longest bull markets. There’s Germany’s toothless grand coalition, which is currently turning in a fantastic Dax performance. There were all those bickering, incompetent European administrations in the 1980s, all of which managed to outperform the UK even though we had Margaret Thatcher running the show.
The point, says Fisher, is precisely that a badly hamstrung coalition can’t do much damage through being clumsy. It can’t pitch its economy headlong into a bold new ideology. I’d personally add that it can’t get away with starving the economy into recovery, as George Osborne has tried to do.
“Unified, active governments are likelier to do things stocks hate,” says Fisher. “Such as change property rights, redraw regulations and redistribute resources and capital… Law-happy Parliaments create winners and losers galore, driving legislative risk aversion and hurting stocks .”
I wish I’d said that, Oscar. But is he right? We’ll find out soon enough.
