Betting Against the Obama Administration’s Economic Policies

Two Market Indices

Two Market Indices

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.



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About Tony Lima

Retired after teaching economics at California State Univ., East Bay (Hayward, CA). Ph.D., economics, Stanford. Also taught MBA finance at the California University of Management and Technology. Occasionally take on a consulting project if it's interesting. Other interests include wine and technology.