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by Hector N. Fertig
The day that Barack Obama was sworn in as President of the United States, the Dow Jones Industrial Average closed at 7,949.09 and the S&P500 was at 805.22. These two indices are used, often blindly, to gauge the “health” of the US business environment. On March 9th, 2009 these indices both reached their recent lows closing at 6,547.05 and 676.53 respectively and we heard reports of $11T losses. Today, the markets are at 8,500.33 and 919.14 suggesting that the $11T that had gone missing in the wilderness by March had wandered back to civilization dragging a few new friends with them. Putting aside for the moment the joyous reunion with our prosperity and not worrying about who is at fault, how are the markets really doing so far during the Obama presidency?
The DJIA dropped over 17.5% between January 20th and March 9th and then rose nearly 30% from March 9th to today for a net gain of 6.93% during this administration. Similarly, the S&P 500 dropped 16% before gaining 36% to net a 14.15% gain. The natural conclusion is that things have improved substantially since President Obama took office. You can’t blame him for what happened before he took office and who wouldn’t want their investments to grow 7-14% in such a short time?
The problems with this conclusion are legion, but the one I want to focus on is PERSPECTIVE. To American eyes which measure in U.S. dollars, the market has grown 7-14% so far. But the value of the USD also fluctuates; it is a measuring stick marked on a Slinky. By the time of the March 9th bottom, the USD was relatively strong compared to just about every other measure and it has weakened substantially against them since. So how do the eyes of the rest of the world view our markets?
The POUND is up more than 15% against the USD since Inauguration Day. Consequently, to British eyes the recovery we’ve witnessed since March 9th only appears to be one-third to one-half as robust. Overall, our friends on the Blessed Rock disagree completely about the DOW under Obama: we think it has grown 7% but they think it has fallen 7.6%! Similarly, while we think the S&P 500 has grown 14%, they feel it has shrunk 1.35%.
The Continent takes an intermediary view. With the USD down 9.3% to the EURO, the DJIA measured in EURO is down 2.2% while the S&P 500 has grown only 4.43%.
Not everyone takes such a dismal view of our markets. To Japanese eyes, both the DOW (up 13.34%) and the S&P 500 (up 20.98%) are booming! Of course, this is driven by the fact that the YEN has fallen over 5.6% to the dollar.
So who is right? In a sense, everyone is. Or more accurately, the idea of measuring something tangible (parts of corporations) against fiat currencies is inherently misleading. But we can also measure these indices against other tangible things, like commodities.
On January 20th, an ounce of GOLD would buy a little more than 1 unit of the S&P 500 and that’s about what it costs today. Similarly, a unit of the DOW cost 9.3 ouces of GOLD then but only 8.7 ounces today – a drop of 6.47%. In ounces of SILVER, the DOW has fallen 22% and the S&P 500 almost 17%. Against PLATINUM the drops are 14% and 8% respectively. Then there’s OIL. The price of OIL has risen dramatically this year. Measured in barrels of OIL, the DOW is down 37.5% since Obama took office and down 7.8% during the recovery. The S&P is likewise down 33.3% against OIL for the year and down 3.5% since March 9th. If your paydays for 2009 involve you receiving compensation in barrels of OIL, you’re a happy person right now. Not so much if you get paid in YEN.
Measured against the USD or especially the YEN, the U.S. Markets appear to be doing well under Obama. But measured against other currencies like the EURO or POUND they do not seem to be doing particularly well and against other tangible assets they are doing quite poorly. This, in my opinion, is a critical point that is lost in the rhetoric surrounding the current financial crisis – we are measuring our markets with an ever-shrinking stick. As more dollars enter circulation, we can expect to see the price associated with our markets rise and people will rejoice in the good news reported – even while others around the world wonder what all the fuss is about.
