Is an Election-Year Rally in Store?

08/11/2011 6:30 am EST

Focus: MARKETS

Louis Navellier

Editor, Blue Chip Growth and Emerging Growth

Despite the current drop, markets generally do very well in the second half of a presidential term, and there’s plenty of time left before Election 2012, says Louis Navellier in this exclusive interview with MoneyShow.com.

What’s going on with 2012 coming up? How’s that going to affect the market?

It should help. What it is, is the third and fourth year of a presidential election term are always the best years of the market. The third year is the strongest.

After the mid-term elections, we have a lot of gridlock...and apparently the more infighting we have, the better the economy does, so we were in that kind of a sweet spot. But we usually have a correction late summer or so, but then we rally going into 2012 because they all go around sucking up to us, and I guess we actually believe them.

And then we’ll rally for the first 100 days of the new presidency, and then we’ll see what happens after that...but both sides want a cut, okay, which is good. I think they’re only about $6 trillion apart right now, and government is actually shrinking.

As a percentage of gross domestic product, or in absolute terms?

Yes, it’s actually as a percentage of GDP; it’s actually putting downward pressure on GDP. The shrinking government on the local, state, and federal level took 1.1% off first-quarter GDP, so if government was flat, instead of growing at 1.8%, we would have grown at 2.9%, so that’s okay.

It’s not a very efficient part of our economy anyway, so hopefully the cap will go to the more efficient sector, but I think election cycles are good for the market. Gridlock is good.

There was a lot of fear that we might have a government shutdown as they fight over the budget ceiling. I’m not worried about that. We have a chart that shows whenever Congress is in session, the market essentially goes sideways, but when it’s out of session it goes up in a very steady, orderly manner...so in theory if we have a government shutdown, it’d probably be good.

Well, it’ll be out of session this summer. [Right now, incidentally—Editor.] Is that going to help the market?

Yes, it’s always good for the market when they’re out of session.

So, you don’t believe in the sell in May and go away theory?

I really don’t. Of course, in a couple of my letters we try to get long-term gains; we’re very proud of getting long-term gains, and if you sell in May and go away you’re going to lose that opportunity.

But I think the sell in May and go away thing is mostly caused by the pension-funding cycle, and what happens is the pension funding tends to dry up after April 15, and so I think that’s what causes it.

What are you doing for income?

Well, ironically, my management company raises a lot more in fixed income than it does in stocks.

We’ve raised over $600 billion in bonds, and so we package these things called Unit Investment Trusts. It’s four-year corporate bonds or BBB or better, and we’re still getting close to 6% gross yield.

Net of fees, the yield is about 4%, so that’s sold to the brokerage committee, and we’re very aggressive selling that. And that’s selling better than ever, and I think it’s mainly because we’re not in the muni business or the government-bond business, and that’s where the chaos is.

So a lot of people who used to do muni and government bonds are now doing corporate bonds, and corporate America is raising about $20 billion a week in new bond debt, that’s about a $1 trillion a year annual pace.

Subscribe to Blue Chip Growth here…

Related Articles on MARKETS