Icing the Gridlock Cake

It’s been a tough week for the Obama administration—and that’s likely a great thing for stocks.

First, political scandals are nothing new—been around since long before Julius Caesar “et tu, Bruted.” And scandals tend to be the stuff of second terms. Watergate, Iran-Contra, Monica-gate. Politicians get tired and sloppy. The press honeymoon (if there was one) is long over. Folks increasingly realize the president isn’t a paragon but a mere human full of foibles. Indiscretions glossed over a few years back start getting second looks.

And yet, the mere existence of scandal(s) isn’t a surefire sign of a politician’s downfall. If that were true, Silvio Berlusconi would be cooling his heels in jail, not participating as an active member of the Italian senate while he awaits yet another ruling on an appeal on his myriad crimes for which he has actually been convicted. Ulysses S. Grant has a relatively untarnished reputation as a war hero, yet served two scandal-ridden terms (the Whiskey Ring, Credit Mobilier). Woodrow Wilson “kept us out of war” but was openly enthusiastic of a creepy propaganda film, The Birth of a Nation. Harry Truman helped rebuild Europe but employed a heckuva lot of Soviet spies. Bill Clinton was impeached but not convicted and finished out his term and remains a power broker. More recently, disgraced former governor Mark Sanford returned to his old congressional seat on Wednesday. And, amazingly (or not, actually), reformed Tweeter Anthony Weiner is mounting a legitimate mayoral bid in NYC.

Should there be a fire (or fires) beneath all this smoke, that still likely isn’t a disruptive force for capital markets. The reverse, in fact. Recall, Bill Clinton was impeached in December 1998—a year US and global stocks had big positive returns (1999, too). That impeachment was the culmination of not just of Monica-gate (which broke in January, 1998) but the Paula Jones investigation, which had dragged on for years prior. Effectively, the leader of the free world was scandal-plagued through a huge chunk of history’s biggest bull market—which was led by US stocks.

More importantly, if the White House is fighting real or alleged fires, it can’t pass much. And legislators up for election in 2014 (an election that already structurally favors the Republicans) may find it expedient to start distancing themselves—and speedily. Increasing gridlock—a powerful bullish force for stocks—was already near guaranteed in 2013. This is icing on the gridlock cake.