GOVERNMENT DIVIDED

BusinessWeek interviews Barry Ritholtz, chief market strategist at New York investment firm Maxim Group, whose analyses come up with a variable-laden prediction for the 2004 election based on four factors.

Ritzholtz says:

I'm a numbers geek at heart, so I watch four quantitative factors that have had a strong historical correlation with incumbent electoral victory, regardless of party. The first is job creation, second is Presidential approval rating, third is percentage saying the country is going in the right or wrong direction, and the fourth is the Dow Jones industrial average performance in the first half of the election year.

The polls are saying this is a very close race, but all four of the above data points suggest the incumbent is in deep trouble. Over a four-year term, when job creation is less than 5%, studies have shown it's a huge negative for the occupant in the White House. As of last month, we were at a negative 0.8%. ...

Ideally, the Street prefers a divided government: The best stock markets of the past three decades have been under Presidents Reagan and Clinton. Reagan was a Republican with a Democratic Congress, while Clinton was a Democrat with a Republican Congress.

Gridlock works because it forces both sides to the middle. Pragmatic moderation is an effective economic policy. Hard-core ideological approaches tend to be disastrous.