Analysis:
Index Portfolio Performance during the Bush Administration to Date
As of Friday, May 19, 2006, George W. Bush had been President of the United States 1,945 days. Other than for a brief period in mid- to late-2001, when a Republican who had become an Independent created a near-even major party split in the U.S. Senate, both Houses of Congress have been controlled by the Republican Party to which Mr. Bush belongs. Economic policy during these nearly five-and-a-half years has been completely controlled by President Bush and his Republican Party members in Congress. Democrats have had no control over the formulation of economic policies and the federal budgets arising therefrom: they have been largely shut out of taxation and spending decisions by iron-fisted, uncompromising rules and actions imposed by the Republicans, who have displayed no intention of or interest in consensus in governance. Consequentially, responsibility for the spiraling, year-over-year federal budget deficits that have hallmarked the reign of the Republicans rests squarely with the Republican Party, its legislators in Congress, and the policy-makers in the White House, including George W. Bush, himself.
The public sector has suffered the long-held hope of certain branches of conservativism that the federal government could be reduced in size, crippled in carrying out certain of its regulatory duties, and diminished in it tax revenue generating capacity. The desirable goal of this political prescription of "limited government" has been that, through the degradation of the public sector, the private sector would flourish. No reasonable argument could be made that, if the private sector were indeed the great beneficiary of entrepreneurialism at its most productive, ownership in business would reflect this through substantial returns on equity. Investors in the stock markets of the United States, particularly investors abiding by prudent portfolio diversification rules and reasonable buy-and-hold strategies, should have seen appreciation in the real value of the money they invested in stocks. This is the necessary reward to induce surrender of current consumption. It is the motivation for investors all the way from the individual of modest means to the giant mutual fund to invest: the goal is to realize more purchasing power at in a future time through consumption opporunities surrendered in the here and now. For many Americans, long-term investments in stocks and other securities are to the end of having some degree of financial security in retirement. For businesses, the accumulation of equity positions in other companies is in its ideal a signal of conviction that gain is to be had through the long-term, expected future cash flows of enterprises acquired.
From the first day of trading, January 22, 2001, after President Bush became the 43rd President of the United States, until the publication date of this article, May 19, 2006, the performance of the major stock markets—measured by the index portfolios of the Dow Jones Industrial Average, the Standard & Poor's 500, and the NASDAQ Composite—has been catastrophic.
January 22, 2001, was the first day of trading after Mr. Bush became President. Three major indices stood at the following levels at the close of trading on that day:
January 22, 2001, Index Closing Values
Dow Jones Industrial Average: 10,578.24
Standard & Poor's 500: 1,342.90
NASDAQ Composite: 2,757.91
At the close of trading on Friday, May 19, 2006, these same three averages stood at the following levels:
May 19, 2006, Index Closing Values
Dow Jones Industrial Average: 11,144.06
Standard & Poor's 500: 1,267.03
NASDAQ Composite: 2,193.88
If an investor were to have formed a portfolio based upon each of these three indices and managed each portfolio in terms of composition and balance to mirror the relevant index, the investor would have earned the following total nominal returns on investment over the 1,945 days from January 22, 2001, to May 19, 2006:
Total Nominal Portfolio Returns over 1,945 Days
Dow Jones Industrial Average: +5.35%
Standard & Poor's 500: —5.65%
NASDAQ Composite: —20.45%
Expressing these returns on an annualized (that is, "percentage return per year compounded") basis, the nominal results just presented are as following:
Annualized Nominal Portfolio Returns over 1,945 Days
Dow Jones Industrial Average: +0.98% per year
Standard & Poor's 500: —1.09% per year
NASDAQ Composite: —4.21% per year
The above are nominal (that is, "not corrected for inflation") results. Taking into account the erosion of purchasing power (that is, "the effect of inflation") on portfolio values over the holding period requires adjusting each of the current values to its equivalent purchasing power value on January 22, 2001. From the Bureau of Labor Statistics Consumer Price Index data for January 2001, the CPI stood at 175.1, and for April 2006, the CPI stood at 201.5. The May 2006 figure can be estimated by various methods, and here, a conservative projection of 202.9 is derived from the three-month moving average of the CPI, implying an annualized inflation rate for the current month of 8.8 percent, based upon the average of the annualized inflation rates for the previous three months, respectively, of 2.4%, 6.8%, and 10.7%. The chart below shows the month-by-month annualized inflation rates for January 2005 through April 2006, along with the attendant three-month moving average.
Expressing the closing index portfolio values as of Friday, May 19, 2006, in terms of their January 2001 purchasing power equivalents yields the following:
May 19, 2006, Index Values in January 2001 Purchasing Power Value
Dow Jones Industrial Average: 9616.35
Standard & Poor's 500: 1093.34
NASDAQ Composite: 1893.13
The total real return on investment for each portfolio is then the quotient of the January 2001 index value when divided into the adjusted May 19, 2006, value:
Total Real Portfolio Returns from January 22, 2001, to May 19, 2006
Dow Jones Industrial Average: —9.09%
Standard & Poor's 500: —18.58%
NASDAQ Composite: —31.36%
Finally, expressing these real returns on an annualized (that is, "percentage return per year compounded") basis, the total real return results just presented are as follows:
Annualized Real Portfolio Returns from January 22, 2001, to May 19, 2006
Dow Jones Industrial Average: —1.77% per year
Standard & Poor's 500: —3.79% per year
NASDAQ Composite: —6.82% per year
The results above are summarized in the following chart:
The total and real returns to the selected portfolios are presented below in graphical form:
An investor forming a portfolio tracking the Dow Jones Industrial Average from the beginning of the Bush Administration in January of 2001 until May 19, 2006, would have suffered a total loss in real value of the portfolio of more than nine percent, which is equivalent to a compounding rate of loss in purchasing power of the portfolio over the term of the Bush Administration of one-and-three-quarters percent per year; the investor forming a portfolio tracking the Standard & Poor's 500 over that period would have suffered a total loss in real value of the portfolio of more than eighteen-and-a-half percent, which is equivalent to a compounding annual rate of loss in purchasing power of the portfolio over the term of the Bush Administration of more than three-and-three-quarters percent per year; and the investor forming a portfolio tracking the NASDAQ Composite index over that period would have suffered a loss in total real value of the portfolio of more than thirty-one-and-a-third percent, which is equivalent to a compounding rate of loss in purchasing power of the portfolio over the term of the Bush Administration of almost seven percent per year.
From a well-balanced portfolio of the common stock of reasonably low-risk, very large public corporations to an equally well-balance portfolio of the common stock of relatively riskier, small-cap public corporations, common stock—the equity, or ownership claim on corporations—has provided significantly negative real returns over the course of the Bush Administration.
Securities markets do not make long-term assessments of the value of the American economy based upon political biases for one party or against another: billions of shares of stock trade each day, and the total value of these trades is an order of magnitude or more greater than this. Over the period of the past nearly five-and-a-half years, the absolute control of the government by the Bush Administration and its Republican allies in Congress has been subject to an on-going, objective assessment by the securities markets of the United States. The result to date of this real value assessment is that the American economy, as represented by the market values of stocks of large, medium, and small companies, has eroded. This is an undeniable, unavoidable fact, regardless of the particulars of the grandly positive economic news that proceeds from the Administration and the agencies thereof.
Regardless of how large the nearly daily dose of good economic news the Bush Administration induces the mainstream media to repeat, the Administration can neither manipulate the stock market data, nor can it find a scapegoat for the broad-based, long-term depletion of private equity value its policies have caused. For the average American who contemplates retirement in part or in whole based upon investments made and held in the stock market over many years, the Bush Administration's record is nothing short of catastrophic in terms of the financial security for what will be generations of citizens in their retirement years. For most, however, the full realization of the value lost and the disrupted, nearly irreparable damage to future capital appreciation of their investments in the stock markets will come only after the era of the neo-conservatives has come to an end.
The masterminds of this financial wreck that has been loosed upon the American people will be able to exit public life long before the full and dire consequences of their disastrous incompetence is fully, or perhaps even partially, understood by the millions upon millions who will suffer as a result. As such, it will be for future politicians to repair as much of this damage as possible while quite probably bearing the brunt of citizens' ire for what was done in the current era, when malfeasant radicals governed so recklessly.
During the course of that degraded and dim future, the Dark Wraith will offer frequent and pointed reminders about those who bear the blame.
Published 5/19/2006 10:38:00 PM
<< 15 Comments Total
Belongs on "Plame/Rove" post below but it's late and my fingers are too tired to scroll.
Truthout Sez: "...we erred in getting too far out in front of the news-cycle."
I hope the Wraith is as impressed as PoLT with their explanation.
Good evening, Peter.
I will have my say on Sunday. The title of the post will be, "The Woodshed."
May God soften my rhetorical whip between now and then.
As it stands, I know of only a couple of commenters, among them, OddJob, who mentioned that there was a dissenting analysis in Blogosphere Left, even though well over a thousand people read (or at least saw) what I was trying to say in every one of my posts on this subject, and in particular, in the post on May 5, 2006. (If someone reading this knows of any blogger who linked to that article, please let me know; I have acquired no tracking links at all to that post.)
And now we have Pitt claiming... what?!—they got 'too far out in front of the news cycle'?
That's sort of like Bush saying the attack on Baghdad got too far out in front of Hussein's chemical weapons program.
GOD!
The Dark Wraith really, really hopes he's in a more charitable mood by Sunday.
good evening dark wraith:
a pox on charity. there would be no gotcha moment had the indictment been filed. it's too bloody late, rove would be out on bail, free as a bird to do his vile machinations for the november elections. it's not going much farther than rove. even if it did, by the time, if ever, they get this into the office of cheney or bush himself the signed pardons will be in the drawer, with the ink long dry. i would expect bush to have the bloody cheek to pardon himself before leaving office. he certainly has the constitutional ignorance to believe it would fly and the arrogance to brazen it out to the bitter, bitter end.
mr benson encourages you to set mercy aside for a while. a good smackdown allows for a generous, lincolnesque "let 'em up easy" moment.
DW,
Is it somewhat prophetic that the Republicans have adopted the color Red for so much? The "Red" states!
Maybe Congress should consider an amendment making "Red" the official color of the United States. We could change the money to a nice red tint to signify it's future; stock certificates could be Dark Red printed on a very light red background; we could get rid of that troublesome white and especially blue on Old Glory. All checks would have to be signed in red.
About the Rove oops; it's interesting that the right seems to use these kinds of gaffs to say that the blogs jump to conclusions on no information, but when the W.H. does it, it's ok.
Sorry. I guess I'm just seeing red!
God, I hate red!
Good morning, Father Tyme.
I strongly suspect that those who chose the colors of our flag had no idea that there would come a time when the colors would be double entendres. Herewith, I offer the new interpretations:
Red: America the deficit-ridden, America that land of sinking portfolio values.
White: America the land turning pale as a sheet as the blood of its young is let.
Blue: America the land of people holding their breath waiting for that tide on which all boats are supposed to rise to lift the poor and middle class up from the bottom of the drink.
Now, concerning the Rove fiasco, you are correct: the Right does exactly the lie-and-move-on stunt. They do it even to their own (as in the McCain/Bush dust-up during the 2000 Republican Presidential primaries). That the Republicans are the winners, hands-down, when it comes to disinformation is all the more reason the opposition should know better than to wander into that territory.
Amateurs, you see, should never try to play against pros.
The Dark Wraith keeps the ball in his own court.
Good morning, Stephen Benson.
Your point is of the very essence. Rove is now the straw man, the decoy dummy just standing there letting the laser-hot stares of the Left fixate on him.
And Libby was the small chunk of red meat to keep the Left believing.
Years ago, when I learned how to make money as a gambler, the hardest thing I had to learn was how to lose. This was especially true for my favored game, backgammon. I was as good as I thought I was, and I wanted to put my excellence on display every last moment, in every game, every night. I wanted to stride into the Gammons Lounge like I owned the place.
Eventually, I learned not to do all that. I learned how to look just a little weak—an amateur aspiring to have some fun and try to make money despite not being able to win very often.
It was when I finally learned that mastery of the game was only the first step in mastering the real game that I got good at making money.
Eventually, I stopped going to the Lounge. That was when the real pros started showing up. They knew the whole game as well as I, and the stakes went from $5 on the cube to $50.
That part of the game, I wasn't able to master.
The Dark Wraith sees some lessons in that story.
Good morning, Peter.
I should take the opportunity to thank you for providing that convenient link to the truthout.org drool. It makes it so easy for me to do a quick click just so I can see something over and over that irritates me so much my rear end aches.
A 'partial apology'?! What is that, like maybe a 'partial fart'?
Grr.
It looks like truthout.org has learned the art of the non-mea culpa from the masters at The New York Times.
'truthout', my backside.
The Dark Wraith is still being terribly uncharitable this morning.
And one more thing before I stopped ranting for today about the Rove indictment story. This article at The Next Hurrah has a minor bit of a jaw-dropper about Mr. Leopold in it.
The Dark Wraith needs to lay off this subject and get back to fun stuff like economics and finance and geo-politics and political intrigue and canning vegetables.
I'm coming in here late, but this was an interesting post. I've been complaining that the market has been "going sideways" for the past few years, but it's eye-opening to see your charts illustrating just how badly it's been doing in real terms. So much for that novel sensation that I was actually making money for a few months this year ... this latest market tumble is really disappointing.
And to think a Republican of my acquaintance with an MBA assured me that Bush's reelection was a "good thing" because having Republicans running the country is better for the financial markets -- I told her I sure hoped she was right, but I didn't think she could be this wrong!
On a tangent, do you think the underperformance of the stock market has anything to do with the overheated real estate market? I think alot of people who got burned in the free-fall of 2000 decided to put their money in RE instead -- plus, with the price housing has been in many markets, who has any money left over for stock market investment after they make a down payment?
Just some musings ...
Good afternoon, Ilex Opaca.
Yes, your friend's assurances about how Republicans are good for the financial markets is such a common theme, and it never ceases to amaze me how little actual evidence such pro-business/pro-Republican sorts have to support this proposition.
I shall stipulate that the Republicans seem to be pretty good for business executives, especially in terms of executive compensation and retirement packages, but those grand rewards have nothing whatsoever to do with business, itself.
If you ever have a chance to show this article to your friend, please let us know what her reaction is to it.
Now, you touch upon a fascinating point about the relationship between financial market performance and real asset performance. There really is a relationship. It's pretty complicated, but some of its implications could be right along the lines of what you are thinking.
You see, to some extent, financial and real assets should move together, at least based upon a generally similar reaction each has to certain components of the interest rate structure prevailing within a country. When they don't, that's important and telling evidence that something's going wrong in other parts of that interest rate structure.
That real estate and financial assets have diverged so strikingly in their respective returns on investment tells us that, as in other periods preceding difficult times, there is a general loss of confidence in those things that do not have a physical nature. In a very crude sort of way of putting it, people are more willing to move money toward something they believe will at least endure in its physical qualities, even if its non-physical qualities fall down the toilet.
Think about it: when people buy real estate, they might say something like, "Well, even if the housing market falls through the floor, at least this way I'll have a place to live." That's an argument that should scare economic planners, since it means that people are starting to structure investments upon essential, basic characteristics of personal satisfaction rather than upon confidence in the long-term strength of the economy itself, which is required for people to put money into assets that don't have that ability to deliver basic personal satisfaction.
Anyway, let us know if your friend thinks these rather staggering negative real returns on equity investment are yet more evidence of how good Republicans are for the financial markets.
The Dark Wraith awaits.
Greetings.
I've been offline the past few days. as well as spending way too much time at work. For shits and grins, I went and viewed my 401K after reading this...I lost about 50% of the last 12 month's income in the last 30 days. Phewww. My best performance is in the overseas fund, which I think is a crying shame and a small indictment of the republican economic policies. I, as an old fashioned type American patriot, would prefer to put my $$$ into US investments, but the gambler/competitive part of me wants to see how well I can come out in this game-which it is, since the "income" I "lost" is less than 5% of the gain I got through matching funds. I reiterate for new readers...PUT $$$, no matter how little, into any matching fund plan your employer may offer. I was matched about $500 this past 12 months. That's ~$42/mo, or the equivalent of a $.25/hour raise. Plus I can't spend it on wasteful things like yard sales or the Chinese Buffet. For about the cost per 2 weeks of one meal for the family at Taco Bell. So I figure I'm doing quite well. I feel sorry for the folks who are simply investing their savings straight, since they do not have the advantage of an automatic 100% increase...I made 107% on the money I directly invested this year. Had I just stuck the cash in a couple of the funds listed as available to me, I'd be in negative return status now. That is something small investors can't afford, and all too many are in that boat.
I ramble, I've been up since 4am, at work at 5 to discover we could not open since the power was out. The boss and I went out to breakfast and opened late when power was restored. It did little for training me further for the promotion being forced upon me, but hey, we did get opened, which counts for something I guess.
BTW-gas prices just dropped back to $2.599/gal, for anyone keeping track.
Good God, Wild Clover. 50% of 12 months' pay in the past 30 days?!
Yeah, that would happen, especially with the clock-cleaning that's going on right now. Today, the markets fought their way back, but only modestly.
And don't feel bad about investing where the profit is: the American companies are always chanting the mantra of free markets and competitive enterprise; so as they live by the sword of their rhetoric, let investors impale them on it with alternatives that offer better returns.
Perhaps at some point the geniuses with the MBAs and all that will figure out that something is wrong with their competitive models when equity positions are going through the floor and investors are headed for better returns elsewhere.
Sooner or later, even the most hearing-impaired of business people might notice that the phone from Clueville is ringing off the hook.
Then again, the Dark Wraith has often been less than impressed with the chasm between what companies say they'll do to change and what they'll actually do to keep from changing.
I've just noticed that on my Roth - 6 thousand some odd dollars - only made 3 bucks and some change for the quarter, which I'd be grateful for if I didn't have to pay some 36.00 for the quarterly fee. I'll be rollin' over that fund into some credit union CD's asap.
SB Gypsy, good heavens! Move that IRA money to a low-fee custodian! $36 a quarter is highway robbery IMO.
Dark Wraith,
Thanks for that great response!
Unfortunately, my friend was a person I knew on a literary forum (there are some OT threads on politics, and things got pretty hot in 2004), but she left after the election because she thought the overall tone was "too liberal" and it made her uncomfortable. I can't remember the last time I saw a post from her.
I'm tempted to run your article past some other Republicans I know, though, who seem to cling to the idea that the GOP is good for increasing the country's wealth. With these kinds of stock market returns, not even wealthy people are making any decent money. A couple months ago I stumbled across a chart showing the changes in net worth for Americans over the past 15 years or so, and what shocked me was that even the top 10% of wealthy Americans have been flatlining for the past three years.
When an administration oversees an economy that sucks for both wage earners AND investors, you know it really, really sucks!