Tuesday, February 28, 2012

Stockmen and bondsmen

Now that the Dow has closed above 13,000 for the first time since May 2008, I wonder if the Times is going to redo their famous chart showing the stock market difference between Democratic and Republican presidents from October 2008:

Given that it's already up 56% since Barack Obama took office three months after that, it might even lead a person to suspect that the Times has a liberal bias and is waiting till October 2012 to do it. If things carry on as they have been doing, that's going to be pretty graphic, as they say.

But speaking of liberal biases, I now have a new idea on the foundational difference between Democrats and Republicans that is directly related to this news. Like so many others who have grown to feel that the liberal-conservative classification doesn't apply any more, I have been talking for quite a while now in terms of a conservative party that we have to vote for and a crazy party that explains why we have to vote for the conservative party, but I'm not really satisfied with that either.

Partly because it's still fun to vote for Democrats, because they're still so truly forward-looking in so many little ways, whether we're talking about same-sex marriage or [jump]
undocumented immigrant veterans or the possibility of sending everybody in the country to college. (While Rick Santorum [people, people, click that link! the special Santorum definition is down to page 2 of the Google results!]) openly says that going to college is bad for people, evidently turning them into so many wicked Voltaires who will favor Free Love and scoff at the Holy Father.) Or SUPERTRAINS, as Atrios would say.

The Democratic Party isn't conservative (except on and off in the good way, in regard to retaining our Bill of Rights and our planet and such) so much as they are not opposed to people who have too much power—they have a kind of tenderness for elites whose interests, we feel, are not ours. And not just because they're the ones who foot the campaign bills, although that is surely an element; it's power people of a particular type, not so easy to define, including not just movie stars and personal injury lawyers but even for-real financiers. Which ones? That's what I want to speculate about.

My first incredibly simple-minded thought was this: Democratic presidents are good for the stock market, and what's the opposite of stocks? Bonds! Are Republican presidents good for the bond market?

Well, to make a short story not too much longer, Dr. Google was onto this as fast, frankly, as if I'd asked her for a cassoulet recipe. The answer is, you bet, pal, and then some. Up popped a web page from 2008, from the Liscio Report, roughly contemporaneous with the notorious Times chart, with everything I had dreamed of, including lots of those reader-friendly graphs.

Here's the one for presidents and stocks, with a breakdown somewhat more ambiguous than the one from the Times, and a commentary still more so:
The blue years have an edge on stock returns, with the S&P 500 rising an average of 4.7% a year in real terms (price only, excluding dividends, deflated by the CPI) under Democratic administrations, compared with 2.9% under Republicans. (Starting the clock in 1949 raises the Dem average to 6.9%.) Still, there are some red bars towards the top of the heap and blue bars toward the bottom.
Strangely, there’s not all that tight a link between stock market performance and profit growth. In fact, the rankings of the two measures show a correlation coefficient of 0.43. Sometimes stocks march to their own drummer.
And then for the bond market the evidence is just about overwhelming:

Unlike the stock market, there’s a clear partisan pattern to bond returns: Republicans are a lot more bond-friendly. Real total returns—price plus coupon, deflated by the CPI—averaged +4.2% a year under Republicans, vs. –2.1% under Democrats. And, as the graph shows, the average is a pretty faithful representation of the relative performance of individual administrations.
 Recall that Clinton came into office with plans for a stimulus program, that were shelved under pressure from what he called “a bunch of ******* bond traders.” This should be kept in mind when evaluating the bond market’s prospects should Obama win in November. It may be that the world has changed to the point where the old Democratic pattern won’t hold this time.
And how did the Obama predictions work out? According to The Money Architects, writing in March 2011,
Government bond yields are now at 60-year lows, [money manager Ben] Inker said at a presentation March 25. The last time bond yields were this low was the 1940s and they generated returns worse than cash for 40 years.
The results are far clearer than any kind of blather about liberals and conservatives could possibly be. Democrats like equity, Republicans like debt (owning it, that is, not so much owing it); Democrats are stockmen, Republicans are bondsmen. Your basic money guy is so hedged in both directions that he doesn't even know how he rolls, but it's not about him, it's about principles so deep that they are not wholly conscious: Democrats like to profit from success, Republicans like to suck the remaining blood out of failures. 

The trickle-down theory actually works when Democrats are in charge—it's a rising tide that's meant to lift all boats; when Republicans are running things it's a wave from our neighborhood to theirs. No, Democrats are not socialists—they're plutocrats, just like you've been saying, but they're plutocrats who can live with socialism, if that's what it takes!

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