Believe it or not, legislative gridlock translates into higher profits for investors.

How is that possible?

For as frustrating as political contentiousness can be for lawmakers and voters alike, the data suggests that politicians’ inability to act might actually be good for the markets.

We realize that this theory runs contrary to the conventional wisdom on the subject but, as I often like to point out, sacred cows frequently make the best burgers.

Our proprietary research suggests that markets tend to run in long cycles averaging 17 to 21 years in length, while the White House political cycle runs in eight-year increments — at best. This means the political cycle is considerably shorter than dominant market cycles.

Our takeaway: In the long run, there’s really no correlation between who occupies the White House and successful long-term investing because the political and market cycles are rarely in sync over such disparate periods.

Are the results any different in the short run?

Nope.

Here, too, the data suggests that it doesn’t really matter which political party is in control, as the stock market’s highest performance (a 9.6% growth per annum) occurs when there’s the most political turmoil …

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… — i.e., when there is a Democratic president and a Republican Congress.

This suggests a finding that’s so surprising, we weren’t sure we believed our eyes either: The Dow Jones Industrial Average (DJI) logs its biggest net gains with a donkey in the White House and elephants traversing the halls of the U.S. Capitol Building.

Another interesting conclusion suggested by our own research here at Money Morning and that of other firms is that, in stark contrast to what most investors believe to be true — that Republicans are better for the markets — the blue-chip-dominated Dow tends to rise almost twice as quickly during Democratic presidencies (7.2%) as it does during Republican ones (3.8%).

The great equalizer (if there is one) appears to be inflation, which rapidly eats away the higher returns to bring them within a few basis points of each other over time.

People assume that a presidential administration and Congress with matching political affiliations is the best way to get things done. But in reality, the checks and balances of a mismatched pair help to ensure that governmental agendas don’t go to extremes. Thus, somewhat surprisingly, political gridlock is actually a reality that puts investors at ease and permits the financial markets to operate efficiently.

With regard to the elections set for this fall, we see two potential outcomes:

• If U.S. Federal Reserve Chairman Ben Bernanke fails in his current efforts to strike a balance between inflation at one extreme and recession at the other, the incoming president will inherit a long-drawn-out economic slowdown (and possibly even an era of stagflation). If that happens, history suggests an environment that’s conducive to a Democratic president and, strangely enough, a Republican Congress. It also suggests that we’ll see more downside ahead before things become “gridlocked” enough that we can enjoy the historically documented 5.6% net increase noted in our chart.

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• If, however, Bernanke’s “Hail Mary” recovery pass is successful, and we avoid a full-blown recession (which seems more doubtful by the day), the historical election-year patterns suggest a brief decline followed by a strong fourth-quarter rally. That would mean that the worst of what the stock market can bring to bear could already be behind us.

Psychologically, we’re just as likely as most readers to hope for good markets and a clean political environment; after all, having the two together just flat out makes one feel better. But in our most-candid moments we realize we must get ready for the opposite — especially now that the Fed and the Beltway Boys are tripping over one another in an effort to regulate “free” markets.

We wish the politicians would focus on something else, especially since the data suggests that their doing so is “good” for the markets.

Nevermind the lies we tell ourselves about elections and our money; sometimes the truth is stranger than fiction.

Keith Fitz-Gerald is the Investment Director for Money Morning/The Money Map Report. To learn more about Keith, read his bio here.

If you enjoyed this article, check out Keith’s “Presidential Approval, Dow Drop in Tandem” and “5 Secrets for Successful Bear Market Investing.”