The other day I mentioned to an acquaintance — let’s call him Mr. X — that I had earned about 10 percent per year betting against the Obama administration’s economic policies. I’ll reveal my not-so-secret method shortly. But first I wanted to deal with the reply from Mr. X: if I had put my wealth into the stock market at the beginning of 2012 I would have made a killing.
This is, of course, tantamount to waving a red flag at an angry bull. Today I finally had a few minutes to pull some data together. Before looking at the data, however, I’ll point to an obvious flaw in my acquaintance’s logic: forecasting the past is always easy. Did he put his wealth into the stock market at the beginning of 2012? I doubt it very much.
But I did get curious, so I grabbed Mr. Excel and headed over to the St. Louis Fed’s FRED database to get the S&P 500 and Dow-Jones Industrial indexes. Here are the results. (I have not included dividends because I’m lazy.). Since January 1, 2000 the annual rate of return on the S&P has been 0.45% and the return on the Dow 1.62%.
But, of course, that wasn’t the question. What have the same returns been since January 1, 2012? Considerably better. The S&P is up 14% and the Dow 9.91%.
But we all know the real question: how has the market been doing since January, 2008 when President Obama took office? The S&P has averaged 1.82% per year and the Dow slightly better at 2.13%. Neither of those numbers look real inviting.
As always my methodology is transparent. You can download my Excel workbook by clicking here. But a warning: I’m using the FRED Excel plugin for Excel for the Mac 2011. Those using Excel for Windows are advised to proceed with caution.
So what’s my secret? A TIPS fund. TIPS are Treasury Inflation Protected Securities. They are issued by the U.S. government and are fully indexed for inflation. Once I saw the drastic actions the Fed was taking with its balance sheet and the monetary base, I became very frightened. Heck, I still am. I shifted a big chunk of our retirement accounts to a TIPS fund managed by TIAA-CREF. Since I got scared before most other people, I am enjoying the large capital gains on this fund. Here’s the bad news: it’s probably too late for others to take advantage of this opportunity. Sorry folks.
