Investments seem as unpredictable as ever

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I've been watching my 401(k) heal and wondering if anyone understands the American economy.

I'm not saying I do. But if President Barack Obama is supposed to be the archenemy of capitalism, few on Wall Street seem to have read that memo.

The flip side of that, though, is that this supposed friend of the working class has had a devil of a time getting people working and keeping them on the job.

The lesson here is an old one. Presidents don't deserve as much credit (or blame) for the state of the economy as they generally get. Nonetheless, the Wall Street story presents a dramatic contrast: The lean years of the George W. Bush administration have been sandwiched by four-year booms under Democratic presidents.

I asked my friend and financial adviser, Joe Hadobas, to compare two hypothetical investors. (Mr. Hadobas had the unfortunate luck to begin watching over some of my retirement money in mid-2007, just a few months before the start of the long bear market that ended in March 2009 -- yet we're still friends.)

At my request, he looked at a mythical person who invested during the last four years of President Bill Clinton's administration and the first four years of President Obama's administration. Then he compared those results to the fortunes of one who invested only during the eight years of the last Bush administration.

Each investor starts with an $9,000 investment Jan. 1 of the inaugural year and then invests an additional $1,000 on the first day of the succeeding years. (We'll use the total return for the Standard & Poor's 500 stocks, including reinvested dividends.)

The investor in the second term of the Clinton administration -- investing Jan. 1 of 1997, 1998, 1999 and 2000 -- would have this ending value as 2001 dawned: $20,403.

The same scenario for the eight years of Bush, from 2001 through 2008: $12,932.

The same scenario for the four years of Obama, 2009 through 2102: $19,208.

The difference becomes more stark in the scenario where an investor takes his haul of $20,403 from the last four Clinton years and hides it under a mattress, "vowing not to invest again until Dubya left office." By the end of 2012, that investor would have had $40,572 in his carefully interrupted eight years of investing, compared to the $12,932 under Bush.

Yowzah.

That may have far more to do with business cycles than who's sitting in the Oval Office, and it could all come crashing down, but that's the stock story so far.

If these past four years have been very good for retirement portfolio repair, the job market is another story. The same day Mr. Hadobas crunched these numbers, The New York Times noted that the private sector had added 725,000 jobs since 2008 -- while the public sector dropped 697,000 jobs. The net gain is a pitiful 28,000 jobs in four years -- "about the size of Weirton, W.Va., when I was a kid growing up there," Mr. Hadobas said.

The good news?

"One would think that the right would be overjoyed at the reduction in government jobs," he said. "A meat ax has been taken to the employment sector Republicans despise above all. Meanwhile the market has soared, cash hoards have built on balance sheets and profit margins are at all-time highs."

The nation also added 180,000 manufacturing jobs in the past year, 25,000 of them last month alone. Construction jobs also jumped more than 30,000 last month. Chalk up much of that construction to repairs in the wake of Superstorm Sandy but, overall, these are family-sustaining jobs.

They just haven't been coming fast enough. The unemployment rate still hovers around 7.8 percent, and food stamp outlays were never higher than they were last year. The Obama era thus far has been terrific for those who can rely on investment income but not nearly so good for those living paycheck to paycheck -- not that you'd guess that from last year's presidential campaign.

"It's a very confusing world, and the voting patterns of the left and right seem to add to the confusion," Mr. Hadobas said.

Don't expect it to make more sense anytime soon. We got past the fiscal cliff with a plan that essentially piled on trillions more in debt in the coming decade -- and Wall Street loved it. Uncle Sam has gone on a spending spree with the credit card for most of the past 30 years -- yet interest rates remain at historic lows. Those low rates have encouraged more speculation in stocks. Who can blame anyone for being confused?

The only sure thing is that a reckoning will come sooner or later, but it's already later than most would have guessed.

brianoneill

Brian O'Neill: boneill@post-gazette.com or 412-263-1947.


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