Random Musings on Markets 2019: The Musings Remain the Same

Happy Friday! In this week’s we-still-swear-it-isn’t-weekly roundup of financial news, we bring you a premature epitaph for stocks, an ETF that doesn’t quite live up to its billing, a wild theory on Italian politics and more.

40 Years Later, Equities Are Alive and Kicking

August 13 marked 40 years since BusinessWeek published what may be the most iconic stock market call ever: The Death of Equities: How Inflation Is Destroying the Stock Market. Its thesis: Persistently high inflation was eroding corporate profits and undermining investors’ confidence in stocks. Combined with shifting demographics and the end of Wall Street’s fixed commission schedule (which would mean brokers had less incentive to advertise stock investing), this meant the stock market’s days of booming were over. Kaput. Dead. This wasn’t merely a flashy cover and edgy title: The text literally argued a near-permanent end to the good times for US stocks loomed.

Hahahahaha, that was quite obviously wrong. Including dividends, the S&P 500 gained 8,297% between July 31, 1979—just before the article published—and July 31, 2019.^[i] If that is dead, we are not sure what living would be.^[ii] Maybe a paradise of near-universal wealth where ordinary folks swim Scrooge McDuck-style in vaults of gold coins?

Anyway, that is the conventional wisdom and we all get to laugh at BusinessWeek’s expense to some extent. However, this week Bloomberg—which now owns BusinessWeek—published a (semi)-defense of the article. Their argument: Sure, it was wrong long term. You can’t argue with such huge returns. But in the three years after its publication, “it remained correct” according to the defense, pointing to a 32% inflation-adjusted decline in the Dow Jones Industrial Average over this span.

Sorry, but we think this is also … umm … wrong. Well, it is right in one sense—there was a bear market in the three-year window cited. Trouble is, that bear didn’t begin until November 28, 1980—15 months after the article dropped. The S&P 500 rose 30.8% (without dividends) in between, outpacing inflation (based on the US CPI), as consumer prices rose 16% cumulatively from July 1979 through November 1980.^[iii] The “bad three years” defense is cherry-picked—it ignores the actual way markets moved at the time. It is a lot like the slew of pundits who argue they “forecast” 2008 by being negative in 2003. Folks, a broken clock is right twice a day. That doesn’t mean it has tocks in its ticker, to paraphrase Dr. Seuss.

Also, there is the little problem of that titular word: “Death.” You see, death is a permanent condition, last we checked. Moreover, all the ailments—stubbornly high inflation, demographics hinting at a decline in equity ownership, a lack of marketing—have proven a skosh off the mark. So, we are sorry to the defenders-of-the-death-column, but this article is epically wrong no matter how you read it.

Good News: Your iPhone Is Vegan!

In keeping with our generally skeptical viewpoint toward the financial products industry, we have long considered most of the ETF world to be one giant ball of marketing spin—a shameless attempt to capitalize on fads and trendy opinions. We aren’t lumping in all ETFs—those based on broad market indexes are lovely. But a slew of ETFs are tied to brand spanking new indexes defined by gimmicks like boardroom gender balance (of which Elisabeth is especially skeptical, SO THERE!). There is also one of our particular favorites, the FANG ETF that excluded the actual FANG companies. Now, launching in September, comes what might be our favorite: the Vegan Climate ETF, with the ticker VEGAN.

Now, if you are a logical person, you would naturally think this fund would include companies like Beyond Meat and other actual, you know, vegan joints. But you would be wrong. As The Telegraph reported: “The fund is not currently invested in vegan food producers, but aims to avoid companies whose activities directly contribute to animal exploitation or environmental damage.”

All good, then? Well: “Its largest holdings will include companies such as Microsoft, Apple, Facebook and Mastercard.” Calling these companies “vegan” makes about as much sense as all those “clean” skincare companies boasting that they use vegan retinol (a heaping load of duh since all retinol is a chemical formula that can’t derive from animal byproducts) or that there is no formaldehyde in their anti-aging serums. It is like advertising a bag of frozen berries as meat-free. Or putting a banner on a box of tomato soup promising it has no bleach. Or certifying that a six pack of beer contains no rat poison.

Beyond the silly, some of the assumptions strike us as a little bit weird. Like, we have used our Mastercards to buy a lot of meat! We are pretty sure Facebook features ads from purveyors of meat and meat products. We don’t happen to consider any of that “animal exploitation,” but we are rather certain vegans, vegetarians and those who don’t share our love of bacon would have an alternate viewpoint. As for including those two tech firms, why not just throw in the phone company, too? We would suggest Tesla, but we like to think the cognitive dissonance would be too much even for these folks to bear.

Anyway, we guess the lesson here is to be vigilant for products that are trying to play on your sympathies. Dig deep, don’t fall for fads, and question everything.

A Wild Theory on Why Matteo Salvini Is Trampling the Competition

When Italy’s populist parties formed a coalition government last year, Luigi Di Maio’s antiestablishment Five Star Movement (M5S) was the senior partner—the one with more seats—and Matteo Salvini’s nationalist League was number two. But since then, polls have flipped. The League is in the catbird seat, followed by the traditional center left (the Democratic Party) and M5S in a distant third. Most analysis of the League’s rise and M5S’s fall centers on Salvini’s charisma (um, see last week’s Musings for more) and his nativist policies’ appeal to the national zeitgeist. Yet we can’t help but wonder if there is a more mundane explanation, perhaps tied to M5S’s performance in local governments.

Exhibit A: Rome, where M5S’s Virginia Raggi presides as mayor. She made news last week for making it a crime to re-enact Roman Holiday by sitting on the Spanish Steps. Aping La Dolce Vita is also off limits, with a dip in the Trevi Fountain subject to a €450 fine. And don’t even think about taking a selfie with cosplaying Centurions in front of the Colosseum. This effort has sparked a backlash from the local press, and to us, it mostly seems like a distraction from the big issues M5S hasn’t yet managed to tackle—like the ginormous trash piles that still line the streets.

We suspect this is probably nearer and dearer to voters’ hearts than whether tourists are lounging around historical places. Our suspicion comes from a recent article highlighting Rome’s wild boar problem.

Yes. You read that right. Boar. As The Telegraph reports: “The city’s failure to collect rubbish has left overflowing bins and skips which provide rich pickings for the brawny pigs. The species has become increasingly bold in and around Rome, as it has in other cities in Europe such as Berlin and Barcelona. But the sight of boar and their piglets snuffling for food has gone from being a quaint novelty to a downright menace, according to people living on the edge of the city. … Earlier this month, a young father pushing his 20-month-old in a pushchair said he was followed and felt threatened by a small herd of wild boar in the area.”

Boars aren’t the only encroaching wildlife. Wolves have also moved in and are snacking on livestock in the city’s outskirts (alas, they don’t seem to have an appetite for a little wild boar ragu). If voters are weary, well, we can kinda understand why. Especially since, without a severe reduction in bureaucracy, no one will be able to start a cottage industry of Roman Wild Boar sausage, which strikes us as an excellent addition to the Italian salumi canon. But as long as the local authorities are more concerned with indecorous tourists, this ingenious solution for the local economy may have to wait.

A Special One-Time Deal on a Business Opportunity

To our UK readers—or those Americans willing to go through the rigmarole of starting a business overseas—we have an idea for you! This week, Goldsmiths College at University of London announced they are banning all beef products from campus in the name of saving the climate. (We guess they didn’t read any of the well-founded critiques of several pundits’ rather off-base summaries of a recent UN climate report.) Starting in September, students will no longer be able to satisfy their hankering for burgers, lasagna or meat pasties on campus. We are sure those who are presently gathering on campus for the Communist Party of Great Britain’s week-long conference are grateful the change did not take immediate effect.

Unlike communism, capitalism is all about solving problems of scarcity and access to resources. So if you would like to solve Goldsmiths students’ beef access problem through capitalism, please, start a café by campus where you serve all the beef! We are talking burgers. Steaks. Tacos. Chili. Lasagna. Pasties. Shepherd’s pie. Meatloaf. A nice Wellington with a perfect crust. We scouted the scene on Google Maps, and it looks like there may be some empty storefronts just waiting for you on Lewisham Way and New Cross Road. Not only will you be feeding these poor students, but you might create jobs for some of them as well—experience they can put on their resumes to show their enterprising spirit once they graduate and start seeking “proper jobs,” as our parents called them.^[iv] You will help better society, one ethically raised cow at a time.

Enjoy your weekend!