CHART OF THE DAY: Here Comes The Year-Three Presidential Rally

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Broyhill Asset Management see a rally coming, and it’s not just because of the current round of QE. This is all about tradition, and Presidents seeking more accommodative monetary policy in year-three of their administrations.

From Broyhill Asset Management’s letter (via The View from the Blue Ridge):

According to work done by William Hester of Hussman Funds, the twelve month period beginning in October of the second year of the Presidential Cycle has enjoyed total returns in excess of 28 per cent. Not too shabby, especially when one considers that we have not registered more than a marginal loss in a single Year Three for almost a century.

What’s the explanation for this? Broyhill Asset Management suggest it is Presidents pushing Fed Chairman to make their policies more accommodative in an effort to buoy their re-election campaigns. Their evidence: Nixon did it, famously, on tape prior to the 1972 elections.

While this liquidity isn’t going to change the economy for the better, it is going to send stocks surging while “the monetary spigots will be running Wide Open,” between now and the 2012 elections.

Take a look at just how large the surge is in year three typically:

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