In the entire history of official recession dating (beginning in the 1850’s) there is a startling fact:
Every newly-elected Republican President has brought a first-term recession. All of them. “Always and only” as we hear from a popular data-mining pundit.
It is not quite “only” since Democratic Presidents avoided recessions on a 10-2 basis. I am not surprised that there was no first-term recession for Bill Clinton or JFK, but who would have expected a clean record for FDR or Jimmy Carter?
Economic Comparisons by Party
Here is another study that says Democrats win on a balance of economic indicators, 11-2. The authors conclude as follows:
“President Barack Obama does not feature in the rankings, as he has not yet completed a four-year term. But if Obama were evaluated now on all 12 of the indicators, he would fall somewhere in the middle of the pack, Deitrick says. The bottom of the pack overall is populated by Republicans: Presidents Richard Nixon, Gerald Ford, George W. Bush and Herbert Hoover.”
Lessons in Inference
I trust that readers will understand my tongue-in-cheek approach to this subject. It is silly to conclude, based on this evidence, that electing Romney will lead to a recession.
Meanwhile, many people use similar evidence to make bold claims about recessions. Their readers consume the pseudo-scientific claptrap and blindly follow the pundit to a dubious decision.
If you agree with me that the conclusion about Romney is not valid, then maybe you need to reconsider the work of the guy who keeps describing a syndrome involving his Aunt Gertrude. The methodology — using many years of backfitted data — is just the same as you see here.
Causal reasoning in economics involves many variables. Especially when the number of cases is relatively small and the number of variables is large, the causal model can be tricky.
Try this one: When a Republican is elected, it is often the result of Democratic economic failures. This means that the GOP winner is saddled with a bad economy.
See how easy it is to create reasons after the fact? Check out one of my favorite stories from “the old days.” The smarter you are, the easier it is to fool yourself.
If you understand this article, you can win an Olympic all-around medal!
- Separate politics from your investments;
- Ignore bogus pseudo-science;
- Beware of recent trends in both fear and greed;
- Look for stocks with attractive valuations.
Each week I summarize the very best recession forecasts. Since those with the best records are not featured in the financial media, this gives thoughtful readers an advantage. Those scared witless by the recessionistas are selling cyclical names and tech stocks while piling into defensive sectors and dividend stocks.
The comparative valuations are becoming extreme. I favor early-stage cyclicals like Caterpillar, Cummings, and Illinois Tool Works. I like tech stocks including Apple, Oracle, Microsoft, and Marvel.
When I look for “dividend stocks” I am not seeking those with super-high yields, but strong balance sheets and PEG ratios, where I can also sell calls to enhance the yield.
The individual investor can find many good opportunities, but you must start with a good grasp of the business cycle.
This post was originally published at A Dash of Insight and is reproduced here with permission.