Analysis:
Index Portfolio Performance during the Bush Administration to Date

After sustaining punishing losses earlier in the week, the major market indices staged a modest recovery on Friday. Such a minor uptick is often believed to be the result of bargain hunters purchasing stocks that were taken down in the heavy trading of a broad-based sell-off. Friday's recovery offered little, however, in the way of glad news for investors. Over the span of the Republican control of the Executive and Legislative Branches of government in this still-young 21st Century, the performance of the equities markets in the United States has been nothing short of disastrous. The blame for this significant erosion of real stock portfolio values goes directly and unequivocally to the GOP, which rode into office on a long-standing platform of fiscal prudence and policies tilted toward economic growth through low taxes and reduction of regulatory hurdles to business investment and growth.

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.

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