Cramer: Stock Market Loves Politicians That Corporations Can Buy

Last night on CNBC, market guru Jim Cramer said the following:

“Pelosi made it really hard for businesses to figure out what the cost side of the ledger would be. She truly made it difficult to influence congress because… well… maybe some people… in the real world… she couldn’t be bought by the companies. The market actually prefers a speaker though who can be bought so to speak.”

In order to avoid claims that I am taking his comments our of context, please read his full comments here:

Ever since the Supreme Court broadened the power of corporations to funnel money into political campaigns, the problem of big money interests trying to buy elections has gotten worse.  2010 was the most expensive midterm election in history.  Estimates are that the final total may be about $4 billion dollars.  One fact may not necessarily follow the other, but the fact is that it is easier today than before for rich people and corporations to bankroll campaigns.

The sources of much of the money bankrolling campaigns will never come to light because it is being “laundered.” (I’m borrowing this term from the recent Tom DeLay indictment:  Money flows into special interest groups, and such groups forward it to campaigns, or they finance their own “issue” campaign ads.  Since these groups don’t have to reveal their donors, we cannot prevent people who are not US citizens from spending as much money as they like to influence who gets elected in America.

This problem is exacerbated by the recent Supreme Court decision concerning a corporation’s right to free speech.  Now that corporations have the same rights as US citizens to exercise a right to freedom of speech by funding campaigns in US elections, corporations who have plenty of overseas investors can use their huge amounts of money to influence elections.

Already we have seen an Australian, Rupert Murdoch have a tremendous influence over the political landscape in America through the Fox News Network.  In order to begin this empire Murdoch had to become a U.S. citizen, but the second largest shareholder of Fox News’ parent company, Prince Al-Waleed bin Talal is a member of the Saudi royal family.

Getting back to Cramer…..

Last night Cramer was building a case that the strong Republican showing last night would result in the US Stock Market going up.  Although Cramer swims against the tide sometimes, this notion that Republicans in power are good for the economy (and by extension the market) represents quite conventional thinking on Wall Street.  Of course, if one actually looks at whether the market has historically preferred a party, then it seems to prefer the Democrats.  (I have only researched this with respect to which party holds the White House.)

Cramer’s argument was based on a comparison of PE ratios over the past 10 years (2001-2006: Republican vs today: Democrat).  He cherry-picked a period of time that contrasts the market before the great recession vs. the market after the great recession, and he attributes the difference not to the recession but rather to who controlled Washington.  My analysis of the performance of the market is based on nearly one hundred years covering many boom and bust periods.

In fact even if we use Cramer’s choice of dates to compare how the Dow Jones Industrial average has performed, then a very different picture emerges than what Cramer suggests. From 2001-2006 the stock market rose 2.36% annually (Republican) while from 2008 until today the stock market rose 8.12% annually (Democrat). Whoops!

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