FT Alphaville’s search for informed markets-oriented commentary on the US presidential election was threatening to result in generalised swearing at the futility of it all - until we came upon this post from uber-blogger Paul Kedrosky, and felt much better.
Why? Because, says Kedrosky, it’s fundamentally a waste of time:
We mine presidential election cycles to come up with historical predictors of which presidential choice will be best for the markets over the next four years, next few months, next ten minutes, etc.
We are told the best presidential returns come during Democratic administrations. Or we see that the Dow usually turns in positive numbers from the election to the end of the year. Or that when a Democrat president is elected the Dow, on average, declines through the end of the year. Or that when a Republican is elected the Dow usually gains through the rest of the year.
Such are the perils of our data-drenched times, and the entire exercise is mostly a waste. While there is no denying presidents can affect markets, and that electing, say, Mao or maybe Mussolini would really irritate capital markets (I think), for the most part markets simply want the entire exercise over with so that they can get on with doing their usual fluctuating thing.
Markets, doing that thing they do. Brilliant.
Except, no one mentioned that to John Tamny and Rob Arnott, editor of RealClearMarkets and chairman of asset manager Research Affiliates, respectively.
In an opinion piece in the FT last week - when global markets were tanking - they argued thus:
We suspect that there might be a direct link between crashing markets and the shifting political landscape, as Barack Obama and John McCain vie for the presidency.
Mr Obama’s agenda is anathema to entrepreneurial capitalism. Protectionism and isolationism are central tenets of the Obama agenda. Neither is consonant with success in a global economy. Redistribution of wealth is central to Mr Obama’s populism. If we reduce the rewards associated with success and cushion the pain of failure, our incentives to work hard and innovate are diminished.
In support of their premise that “the market crash is, in part, a direct consequence of the shifting polls that point to a near-certain Obama victory and with it his anti-capitalist agenda“, the authors compared the daily changes in Obama’s electoral prospects with daily stock market fluctuations.
And concluded:
Are Mr Obama’s soaring prospects for victory causing global markets to crash? Or is the global market crash driving voters into Mr Obama’s camp? Is the global recession and liquidity crisis both creating the market crash and setting the stage for an Obama victory? Statistics alone cannot answer these questions. But many readers may be surprised to learn that they support all three.
There is more than a 20 per cent correlation between today’s market action and the changes in Mr Obama’s prospects, with markets falling when these prospects improve. If we ask whether a drop in stocks today presages an improvement in Mr Obama’s prospects tomorrow, or whether an improvement in these prospects today presages a falling market tomorrow, we get a still-impressive correlation of over 10 per cent in both cases.
And further:
We assume that Mr Obama wants to see the market soar in reaction to his probable victory next Tuesday. If he wants to assure a strong market in the wake of his probable election, he may wish to temper his protectionist, isolationist and redistributive rhetoric.
A few words of respect for the merits of global competition would go a long way towards soothing the markets and ending this current vicious cycle. How about it, Barack? Care to say something nice about capitalism in the next few days?
Tamny and Arnott’s piece appeared on FT.com on October 30th. Since then, the Dow has rallied by almost 600 points, or nearly 7 per cent.
Has Obama been having a quiet word with the bastions of capitalism regarding his undying love of free markets, or is Kedrosky right after all -
Extrapolating much of anything useful from presidential data is entertaining, but a waste of time for everyone but the pundits who get to fill some air time with pseudo-scientific yapping.
Hmm.
Related links:
Obama’s best trade: himself - Gregor.us
