Mercury Rising

The flimflam man comes to town and promises to make you rich beyond your wildest dreams. "Taxes are your problem," he tells you. "I'll cut your taxes, and you'll make more money than ever. The only problem with this scheme is this thing called reality. First, of course, is the creation of national debt through deficit spending. As long as GDP rises in tandem, this isn't too pernicious. But we want to keep national debt low precisely so that if there is a war or natural disaster, we can tap the credit line without setting off stagflation. But I have actually done some detailed comparisons of what happened to income and net assets of portfolios managed by some of the top names in the business. Unfortunately, there's so much hype out there that it takes a heavy dose of green eyeshades to get a clear picture. The following three well-diversified portfolios had identical objectives. Two were managed with the belief that Bush is good for business. One was managed that way until 2002, at which point, the manager concluded that Bush is an idiot and started shifting away from investment based on Republican idiotological principles. (If one uses 2000 as the base year, similar results are obtained). The portfolios aren't quite comparable, since the switched strategies portfolio has to be run a lot more conservatively than the others. Also, the turnaround on the switched strategies wasn't instantaneous. That portfolio also suffered larger hits in 2002-3 because of corporate scandals. But consider the bottom line. Year....Pro-Bush 1........Pro-Bush 2........Switched strategies ........Total Return.....Total Return.......Total Return 2001 100 100 100 2002 84 91 84 2003 98 103 96 2004 107 110 98 2005 107 106 110 2006-1Q 112 107 115 These are rotten returns by any historical standard. They are below inflation. You would have been wiser to put your money in a CD at the end of the Clinton years and waited until Bush was gone. If you correct those for the value of the dollar and for inflation, the picture is far worse. All of the portfolios would be down-- way, way down. Of the three, the switched strategies portfolio is doing the best and seems to be on track to outperform even though it is required to hold a disproportionate amount in cash. It's a well-known fact that Democrats are better for the market than Republicans; compare the Dow in January 1993 with the Dow in December 2000. But this has been studied historically, and it's true in administration after administration. Merrill Lynch, hardly a branch of the DNC, issued a comment to its investors to that effect. And here's graphic evidence from a real-life study of three essentially-comparable portfolios managed by the top names in the business. The flimflam man promised you lower taxes. But what he didn't tell you is that you'd end up the poorer for it. And the nation has ended up the poorer for it-- we're probably working on a national debt six trillion larger than it needed to be. A debt we will have to pay after Animal House-- or is it Animal Farm?-- has vacated the White House. Bush is truly the investor's worst nightmare.