New York (HedgeCoVest.Com) – In a feud that seems to have been going on as long as the feud between the Hatfields and McCoys, several major Democratic politicians have taken up the next battle between Wall Street and the Democratic Party. Within the last few weeks, President Obama has spoken out about the tax structure of hedge funds and how it is unfair and that it is keeping the government from funding major programs. The President isn’t alone either. Two candidates that hope to follow President Obama have also joined the fray as former Secretary of State Hillary Clinton and Senator Bernie Sanders have also voiced their opinions about the hedge fund industry and the tax structure. While the populist view makes headlines and rallies the troops, the truth is that Democrats should be thankful for what Wall Street has done during the last two Democratic administrations.
Please understand that this is not a stance for either side, but rather a statement of some facts about how the market has performed during Democratic and Republican administrations and how the gains from the market have helped the Democrats.
Let’s start by looking at the performance of the S&P 500 over the last 172 months of both Democratic administrations as well as Republican administrations. If an investor had $100,000 to invest and they invested in the S&P 500 only when a Republican was in the White House over the last 28+ years and then sat on the sidelines while a Democrat was in the White House, that investor would have $108,731 today. Conversely, if an investor did the opposite and invested their $100,000 in the S&P 500 only when a Democrat was in the White House and then sat on the sidelines when a Republican was in the White House, that investor would have $794,286.
Here is how we arrived at those figures. We looked at the last 172 months where a Democratic administration was in place and that includes all of President Clinton’s years and the Obama Administration up until the end of April. For the Republican side and in order to compare the same number of months, the data includes President Reagan, President GHW Bush and President George W. Bush.
While the Republican Party is thought to be the party that looks out for businesses and the wealthy, the last two Democratic administrations have been very good to Wall Street and they have been great times of wealth creation. The Democratic Party is thought to be the party of the common man and against big business and yet big businesses have thrived during the last two democratic administrations.
Democrats love to point out how much President Obama has trimmed deficit spending and how President Clinton was operating a budget surplus when he left office. However, do you think those statements are true if not for the performance of the market? Think about all the wealth that was and has been created during the bull market of the late 90s and the current bull market. How much tax revenue has been collected on those market gains? Do you think that helped the two Democratic administrations with their budgets? You bet it did.
Perhaps instead of targeting hedge funds and the managers for how they are structured, maybe the Democrats should think about all of the capital gains that are generated by hedge funds and how the government is collecting tax revenue from the investors in those funds. Not to mention the general public and the tax revenues being collected on gains generated by Wall Street that come outside of hedge funds. Democrats should not think of Wall Street and hedge funds as the enemy, they have helped the last two administrations look good in terms of fiscal policy.
So as not to be one sided, perhaps Wall Street should not view Democrats as the enemy either. Looking at the chart above, there has been a lot more money made on Wall Street during the Clinton and Obama administrations than there was under the last three Republican presidents. Hedge funds did very well during the Clinton administration and while as a whole they may be lagging behind the overall market so far in the Obama administration, they are still making money for their clients and for themselves.