Analysis:
Index Portfolio Performance during the Bush Administration to Date

As of Friday, March 31, 2006, Republican George W. Bush had been President of the United States 1,896 days. Other than for a brief period in mid- to late-2001, when a Senate Republican became an Independent, both Houses of Congress have been controlled by the Republican Party to which Mr. Bush belongs. During this period, economic policy has been indisputably under the control of President Bush and his Republican Party in the federal legislature. Because of this absolute, one-Party control of the Executive and Legislative branches of the United States government, the Democrats have had no control over nor material say in the formulations of economic policies and the federal budgets arising therefrom. In particular, 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 argument that the fiscal health of the public sector has faltered to the benefit of the private sector does not hold water. From the first day of trading, January 22, 2001, after President Bush became the 43rd President of the United States, until the last day of trading prior to the publication date of this article, 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 nothing short of a debacle, offering compelling testament to the real erosion of the capital stock of the nation as measured by the value of equity holdings in three broad-based portfolios formed from well-known indices.

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: 1342.9
NASDAQ Composite: 2757.91

At the close of trading on Friday, March 31, 2006, these same three averages stood at the following levels:

March 31, 2006, Index Closing Values
Dow Jones Industrial Average: 11,109.31
Standard & Poor's 500: 1294.83
NASDAQ Composite: 2339.79

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 1,894 days from January 22, 2001, to March 31, 2006:

Total Nominal Portfolio Returns over 1,894 Days
Dow Jones Industrial Average: +5.02%
Standard & Poor's 500: —3.58%
NASDAQ Composite: —15.16%

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 1,894 Days
Dow Jones Industrial Average: +0.95% per year
Standard & Poor's 500: —0.70% per year
NASDAQ Composite: —3.12% 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 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 February 2006, the CPI stood at 198.7. The March 2006 figure can be estimated by various methods, and here, a conservative projection of 199.1 is derived from the three-month moving average of the CPI, implying a modest annualized inflation rate for the month just ended of 2.4 percent. The chart below shows the month-by-month annualized inflation rates for 2005 and 2006 to February, along with the attendant three-month moving averages.

Expressing the closing portfolio values as of Friday, March 31, 2006, in terms of their January 2001 purchasing power equivalents yields the following:

January 2001 Real Value Equivalents of March 31, 2006, Index Values
Dow Jones Industrial Average: 9770.42
Standard & Poor's 500: 1138.78
NASDAQ Composite: 2057.80

The total real return on investment for each portfolio is then the quotient of the January 2001 index value when divided into the adjusted March 31, 2006, value:

Total Real Portfolio Returns
Dow Jones Industrial Average: —12.05%
Standard & Poor's 500: —15.20%
NASDAQ Composite: —25.39%

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 following:

Annualized Real Portfolio Returns
Dow Jones Industrial Average: —1.52% per year
Standard & Poor's 500: —3.13% per year
NASDAQ Composite: —5.49% per year

All of the results above are summarized in the following chart:


The total and annualized 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 March 31, 2006, would have suffered a loss in total real value of the portfolio of more than 12 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-a-half percent per year; the investor forming a portfolio tracking the Standard & Poor's 500 over that period would have suffered a loss in total real value of the portfolio of more than 15 percent, which is equivalent to a compounding rate of loss in purchasing power of the portfolio over the term of the Bush Administration of more than three 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 25 percent, which is equivalent to a compounding rate of loss in purchasing power of the portfolio over the term of the Bush Administration of five-and-a-half percent per year.

From a well-balanced portfolio of the common stock of reasonably low-risk, very large public corporations to an equally well-balanced portfolio of the common stock of relatively riskier, small-cap public corporations, common stock—called equity—has offered significantly negative real returns during the tenure of the Bush Administration. The securities markets do not make political assessments based upon biases for one party or the other: 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 five-and-a-quarter 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, and the result to date of that assessment is that the American economy, as represented by the market values of stocks of large, medium, and small companies, has eroded undeniably and markedly.

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.

In that regard, then, the architects of this malfeasance visited upon the American people will be able to go to their own retirements relatively unscathed by the wrath of retirees of the future realizing as they will that their relative poverty in their declining years is directly attributable to the men and women of this early part of the 21st Century—men and women who will, themselves, live in fair comfort as those for whom they had such grave responsibilities suffer substantially in that degraded time to come.



The Dark Wraith in that grim future will offer unhelpful reminders to citizens as they pay the price for the folly of having trusted Republicans one too many times.

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This article is cross-posted from The Dark Wraith Forums.