Skip to main content
Message Font: Serif | Sans-Serif
No. of Recommendations: 0

Someone asked for evidence to support my earlier assertion that the S&P is in a bad way for the foreseeable future. Here it is.

Read downwithinfidels' blog for more detailed information with plenty of satiric asides. But I happen to know you already do that, so allow me to support some of his conclusions.

For one thing, the last time we had a political environment so hostile to economic freedom we were rewarded with what was known as stagflation. How much purchasing power did S&P investors gain between 1965 and 1980? Not nominal returns measured outside of inflation, but real, honest-to-goodness purchasing power? Real returns were negative with or without dividends reinvested. Throw in commissions or management fees, and taxes on your nominal gains and your dividends, and you got hosed, but bad.

The time before that it was called The Great Depression. And yes, the political climate for the economy changed while FDR was still in office. He realized the error of some his ways in 1942, and he eased his repressive anti-economic regime enough to allow us to eventually win WWII. In a way WWII did, as some claim, end the GD, but only through a penitent FDR reversing his abominable earlier policies, which caused the GD in the first place.

Economically repressive or irresponsible regimes like FDR, LBJ, RMN (nobody calls Nixon that, do they?), JEC, GWB, or any of the current presidential candidates, inevitably minimize the stock market's real return either straightforwardly or surreptitiously by inflation. Of course, some publicly traded companies benefit from bad government policy, such as ADM from ethanol subsidies, or BRK from estate taxes, but by and large we all become poorer when the government interferes with the economy, and that negatively impacts companies large and small.

In a sad irony, those most devastated by restrictive government regulations, taxes, and inflation, are those who are the most loyal to the policies that keep them from becoming well-off. The government's welfare state is like an annuity that you give your freedom to in a lump sum, and it pays 1% per year, and charges 2% in fees (to follow the strained metaphor, opportunity costs and a worse job market and lower real wages due to the taxes and inflation).

I think we are in the midst of a time of horrible real returns in the broad stock market, and my reasoning is the horrible political climate where no one even like Coolidge or Reagan is in the running for any office higher than congressman (sorry, Dr. Paul). It's the fault of the electorate, as I said before. More than 50% of us either supported or winked at McCain-Feingold, Medicare's prescription drug benefit, the death of social security reform, and many other horrible pieces of legislation that are either due to the current candidates, or dwarfed by their far worse policy proposals.

I tried to just smile and play along with all of you liberals who support democrats, delusionally believing that they will be any better for the economy than the current president, but that's just not true. The late 1960's and all of the 1970's show that the political environment matters to both the stock market and the economy in general. 1929-1941 even more so. Vote for the most fiscally conservative congressmen you can. If you happen to be so lucky as to live where a conservative or libertarian is running for senator, vote for him or her. And, bizarrely enough, you have to vote for a democrat in 2008 to get a shot at having a good president in 2013, because if McCain gets elected and survives his first term, it will be two liberals you're choosing between in 2012. And 16 years of liberal-left expansion of government entitlement programs paid for by inflation or taxes can be devastating to the economy.

As for how to invest, go with gold and silver companies, and foreign companies. Sorry this was somewhat light on documentational evidence, but I'm feeling too lazy to go and get charts and stats, and too angry at our government to pass up this chance to rant.

Print the post  


What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.