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

Conflicting Government Mandates Promote Market Instability

One of the observations in this book has been that the government is working at cross purposes with itself in order to try to manage the economy when what the economy really needs is to be left alone. The left hand really does not know what the right hand is doing, and sometimes is much stronger and sometimes much weaker than the other hand, so they do not know how to coordinate. The government has set in play giant forces, some of which are extraordinarily inflationary, and some of which are extraordinarily deflationary, and the one thing you know for sure from the track record of the government is that, triumphant appearances on TV notwithstanding, the government is essentially like the little man who played the wizard in The Wizard of Oz. Even though the government would tell you, “Do not pay any attention to that little man,” like Dorothy, we all know that it is just a little man behind a screen who is really pulling the strings, a little man who knows less than the market. If you catch him alone and ask him, “Do you really know what the outcome is going to be here?,” in a moment of honesty he would be forced to say, “I do not.”

The right hand of the government is the inflation side of the government's “reptilian brain.” The reptilian brain is that part of the brain we have in common with lizards and dinosaurs. The inflation lobe of the government's network is led by the Fed. That little man behind the curtain is Fed ...