Trade the Congressional Effect: How To Profit from Congress's Impact on the Stock Market

The Time-Money-Vote Continuum: Congress as a Business

This chapter looks at the job of each congressman from his own self-interest, which usually but not always consists of getting reelected. Congressmen with longevity (and most of them achieve at least longevity) can get very wealthy over time, mostly from seeking rents and trading upon their influence, as opposed to their W-2 income as a congressman. It is not a new thought that Congress is often corrupt, but it is seldom thought of in the context of how it affects the stock market. I do not mean to suggest that congressmen never act in the interest of the country—but rather that the system as a whole provides them endless incentive to intervene in markets with predictably bad results. The business of each congressman is constantly to refresh their pool of supporters. To gain more votes, they can spend time or money with constituents and return favors. That is why there is a continuum: time equals money, and money equals votes, so the average congressman rightfully equates the two as he tries to guarantee his reelection. Once you see the forces that drive reelection, you will understand why there is a relentless Congressional Effect in the stock market. This chapter reviews the business dynamics of being an entrepreneurial congressman and the average economics of an election cycle.

Each election cycle, there are 435 members of the House of Representatives who have to be reelected. In 2010, the average winning House member spent ...