S&P 500 vs. U.S. GDP Since 1950

Frank commented that the S&P 500 is a poor indicator of the economy's health and over very short periods (days, weeks, months) I agree. Over years and decades it's a pretty good barometer. The graph above charts the S&P 500 against quarterly GDP (in 2000 dollars). The S&P is adjusted downward by a factor of eight, a rough guess for the effects of inflation in the past 58 years (data are through 10/1/08).

I generally loathe market commentary and can feel my eyes roll into the back of my skull when politicians do it. THEY HAVE NO CLUE AND ONLY SPEAK ON THE TOPIC WHEN IT'S SELF-SERVING. In fact, I'll make a standing offer to any politician who fancies herself the next Ben Graham or Warren Buffett: sight unseen I'll take the other side of your trade in any market at any time (absent inside information).

Other than two recent rather painfully burst bubbles, GDP and Mr. Market are heavily connected (BTW, for stat geeks, R-squared for this model is a reasonably explanatory .84). Though I've made fun of the Obama administration for the market meltdown since Election Day I think it's silly to assign all blame, or credit, to a president for daily movements in the stock market. I'd argue that our current crash is related to the massive underpricing of risk starting in the mid-1990s which did not fully unravel even after the dot.com crash. While there's a good case capital is on strike while the administration's plans for protection, regulation, taxation and unionization unfold, when businesses can start making money again Mr. Market will follow.

Morning in America, Again

Reporting from the Conservative Political Action Conference in Washington:

Anticipation of Saturday's late afternoon appearance by Rush Limbaugh to close out CPAC 2009 began this morning and, midday, attendees were essentially faced with a choice -- keep your seat in the Shoreham Hotel's Regeny Ballroom for the duration, or risk viewing El Rushbo's remarks on a monitor from spillover seating down the hall.

This is the what you might the call the perfect Conservative storm. Rush blowing in from the south, converging with nearly 9,000 registered CPACers in a ballroom at near-maximum capacity, in a moment when nothing short of a religious experience is adequate to calm the apprehensions of Conservatives young and less young.

Author Ann Coulter also drew a full house around the lunch hour. It was telling that her humorous verbal arrows, while well received, did not have the audience actually rolling in the aisles in side splitting ecstasy. The material was not the problem. It just seems all too apparent that most fervently patriotic Americans are shell shocked by the rapid deployment of B. Hussien Obama's destructive economic and social marching orders, and terrified to think too far beyond tomorrow.

(Among Coulter's best lines: "The media tell us Obama is the Second Coming, but his policies seem to ensure there won't be a second term coming.")

That's why my vote for the day's top speaker amid the Countdown to Rush goes to former Reagan cabinet member Bill Bennett, radio talk host, former Secretary of Education and recent author of a comprehensive history tome, "America: The Last Best Hope".

Bennett brought a no-frills, raspy voiced, rumpled sensibility to Day 3, and his
message is one to embrace tomorrow, next week and throughout the year to come:

"Things looked dire, looked worse, in 1974," said Bennett, referencing the year of
Nixon's demise, stock market stagnancy and the debut of CPAC. "And in 1978, '79, at the end of Jimmy Carter's presidency, things looked dire, too."

Then, Bennett issued his rules for the road ahead. I'd clip and save these.

1. Understand reality. Obama is an appealing politician. And he is not likely to make the stupid mistakes associated with the Clinton years.

2. Obama will not wreck the country. As Conservatives, we gain nothing by predicting that these are the "end of days". No one individual can wreck the country. We have feared this in our past, and it has proven to be misguided.

3. Watch our rhetoric. We are NOT seeing the rise of Socialism. (Bennett was the
only speaker of the three days who rejected this charge). We're seeing the resurgence of a Democrat Left Wing Catechism. In other words, unsettling but not unexpected.

4. Conservatives have talent. "I can't remember a time when we've had a better
bench." He named Jindal, Pawlenty, Sanford, et al. "We had no bench like this in 1979 (when Reagan stepped up)."

5. Never underestimate the American capacity for self-renewal. "It is not dark, or dusk in America," Bennett said. "It is MORNING in America."

Optimism. Realism. Conservatism. Morning.

Any questions?

Live from the Conservative Political Action Conference

Here at the Conservative Political Action Conference in Washington, portfolio manager Eric Singer is offering attendees an opportunity to recoup some of their investment losses.

Singer founded Congressional Effect Management, a fund that seeks to "minimize the market's political risk by only investing in equities when Congress is on vacation."

He's also publishing an e-letter, the Congressional Wealth Destruction Monitor.

Since launching his strategy in May 2008, Singer claims a 0.22% return that has significantly outperformed the S&P 500 (down 38.5% in the same period).

This got my attention: Singer says that, in the past 44 years, the vast majority of the stock market's returns have been gained on days when Congress is on recess.