Random Musings on Markets X: All Musings Attack

This not-weekly roundup that we are not committed to publishing every seven days includes a look at why boycotts don’t mean much for stocks, a lesson in fake meme identification, lodestar, Generalissimo Francisco Franco’s relocation and more.

Just Do It?

This week, Nike announced its plan to feature a former professional quarterback in an upcoming ad campaign. This was controversial! And not because of said player’s on-field performance. Rather, this gentleman has been embroiled in a political controversy. So of course the Internet was divided, as it always is, with the outraged half waging a boycott and Instagramming pictures of Nike socks with the swoosh lopped off. The other half, predictably, pledged to buy way more Nike goods. We suspect both sides will cancel each other out and life will go on—as it would have if that mooted In-N-Out Burger boycott had actually happened.

We wouldn’t ordinarily muse on such purely sociological developments, but now and then we see investors try to push change by boycotting certain companies’, countries’ or sectors’ stocks. The Nike kerfuffle shows why this doesn’t work, however well intended. This world is full of people with conflicting political opinions. For every investor who wants to divest of fossil fuels in hopes of curbing pollution, there is another who wants a slice of their earnings and perhaps appreciates fossil fuels’ ability to bring cheap energy to developing nations and improve quality of life there. For every investor who wants to boycott Country X’s stocks to teach its government a lesson, there is another who loves Country X’s government and wants to show some support. For every investor who cares most about social change, there is another who cares most about investment returns. And so on down the line. In the end, it is all largely zero sum.

Spot the Fake Meme!

Frequent readers of this site may know we analyze major financial media and blogs on a daily basis, with an eye to identifying both articles we find sensible and those we believe are off base. (Where? Here!) Many times, we find media is a little careless or off with how they present data and information. Consider, for example, this Bloomberg article, which claimed US GDP grew 5.4% in Q2—“almost as fast as China.” This figure is pretty different than the 4.2% annualized figure the Bureau of Economic Analysis reported for Q2, so our antennae went up. Other than stating this figure was “seasonally adjusted,” it also went unexplained—no statement about whether this was quarter-over-quarter, annualized, real, nominal. Nada.

We explored and found this is US GDP in nominal terms (i.e., not inflation adjusted) and calculated on a year-over-year basis. This is a very odd way to view US GDP, hence why it caught our eye. It is not fake news per se, given the data are accurate. That said, comparing it to Chinese GDP favorably is bizarre. In nominal terms, China grew at a 10% y/y clip in Q2.^[i] 5.4% is about half that, making the China-like growth claim a wee overstatement?^[ii] In real terms, US GDP grew 2.9% y/y, far below China’s 6.7%.^[iii] But even this comparison is off, as the US figure is seasonally adjusted and China’s isn’t—the latter being typical for year-over-year statistics. This is emblematic, in our view, of problems with financial (and, yes, political) reporting these days. We often see media comparing stock market returns in different currencies, which is no-no time. They take figures out of context. They don’t check themselves, like several recent articles claiming inflation, as measured by the core personal consumption expenditures price index (PCE prices excluding food and energy) finally hit the Fed’s 2% y/y target after six long years. This one spent 396 words and a chart celebrating the feat. One problem with that: The Fed doesn’t target core PCE. It targets headline PCE, which has eclipsed 2% y/y on several occasions this year and in early 2017. None of this is all that consequential, and this doesn’t make it fake news, but it does suggest reading with a critical eye is crucial. Regardless of the outlet.

Now, that brings us to a more fun(?) aspect of fake news. This week, The New York Times featured a digital quiz of sorts, asking readers to select between one “real” meme and one “fake” meme, allegedly generated by nefarious folks for use on Facebook and the like. It is a fun quiz! Take it! And here is a helpful tip you can take away: Those who generate false memes don’t have the world’s greatest grammar skills. (Which reminds us of email scams, too!) The Times presumes this is because many are not native English speakers, so they word things oddly, “particularly the misuse of ‘a’ and ‘the,’ which don’t exist in the Russian language.” Which is useful! But we have a more useful tip: Don’t get your facts from memes, regardless of the source. Even those that wouldn’t be deemed “fake news” by the Times’ standard often employ dubious measures, inaccurate claims and more.

That being said, if someone wants to launch Fake News: The Game Show! we won’t object.

Public Service Announcement

Lest there be any unsettled questions, we did not write the infamous “Lodestar” New York Times op-ed. For one, we of course aren’t White House staffers. (Perish the thought!) Two, we wouldn’t miss such an obvious opportunity to pair that word with a reference to Captain Lonestar from Spaceballs. Three, even if we were supposedly senior White House staffers who occasionally blocked some Presidential initiatives with bureaucracy, we would not see the point of bragging about this in an anonymous op-ed, because we would not consider it newsworthy seeing as how that is the function of every bureaucracy ever. Indeed, the only reason we can think of to make it a story is to get lavished with fame and attention and walk away with a million-dollar book deal, which renders anonymity utterly pointless.

This op-ed, for all the associated hubbub and promotional efforts, simply puts a glossy, self-important sheen on everyday government. As Bloomberg’s Noah Feldman saliently pointed out: “It’s a fantasy to imagine that any modern president runs the executive branch alone. No president does, or can. It’s too big. It has too many moving parts, there are too many employees and too many jobs to do. The executive isn’t unitary except in theory. The executive in practice is multiple, varied and variegated. And the course of policy is always contested within an administration, both openly and covertly.”

President Trump isn’t the first president to occasionally run into his own staffers, and he won’t be the last. As Fisher Investments’ Investment Policy Committee member Aaron Anderson wrote here, President George H.W. Bush’s Treasury officials nixed his idea to index capital gains to inflation. More broadly, despite the attention Executive Orders have received in recent administrations, most amounted to telling parts of the executive branch to go study things and consider new rules—and most of the time, those studies went nowhere. Sometimes, one of the biggest limits on the executive branch is … the executive branch.

Last, we offer this bit of news: Bookmaking websites are now taking bets on which administration official actually did write the op-ed. (Disclosure: We do not advocate gambling.) Now, this is of course not gambling advice. But if you were so inclined, you could visit NBC News’s list of officials denying authorship. You could cross reference this with a list of Trump administration officials!^[iv] You could approach it like Clue, narrowing this list down until you have zeroed in on Colonel Mustard with a lead pipe in the library. But this strategy could fail! Someone could be strategically denying! After all, Mark Felt spent decades swearing he wasn’t Deep Throat.

Here is another possibility: What if Trump planted the op-ed? Meaning, what if he decided sending media on a ridiculous goose chase in search of the “resistance” official was the ultimate media troll? Look, we doubt it. But you can’t know. And neither do the media, which is the peril of publishing an anonymous op-ed like this.

Generalissimo Francisco Franco Is Still Dead. He Is Also Moving.^[v]

In Spain, a man dead since KC and the Sunshine Band topped November 1975’s charts with, “That’s the Way (Uh-Huh Uh-Huh) I Like It,”^[vi] is dominating headlines and politics. Francisco Franco, Spain’s former fascist dictator dead over 40 years, is moving, and this is triggering vast political debate in the country.

He isn’t a zombie! Nor is a dead man on an election ballot of sorts. No, he is moving in the sense Spain’s minority government, led by Socialist Pablo Sanchez, is planning to exhume his body from its current resting place inside a dramatic memorial known as “The Valley of the Fallen.” Franco lies in a place of honor inside the memorial, which he constructed to pay homage to himself. Oh, and he claimed, those killed in Spain’s 1936 – 1939 civil war. Many have long thought this odd, given Franco was sort of a major reason lots of those people were killed. And honoring a fascist dictator is also a little unseemly, for rather obvious reasons. Furthermore, many victims of Franco’s regime are also buried at this same location—against their families’ wishes.

Anyway, left-leaning parties in Spain have long sought to have Franco moved as a way to condemn his dictatorship and turn the page. Center-right parties (like the Popular Party of recently ousted Prime Minister Mariano Rajoy) are largely indifferent, arguing the 40 years elapsed between his death and now suffice. But the issue stirs many emotions, headlines and political debate. So why do it? Sanchez leads a flimsy minority government—even more flimsy than the Rajoy government he deposed. He likely sees evicting Franco’s corpse as a way to coalesce left-leaning groups behind his leadership.

And maybe so! But for investors, all these historical and sociological matters aside, consider: If a man dead 40 years can dominate debate in Spain, that suggests to us this country isn’t likely to pass any radical legislation. That, friends, means little legislative risk to markets, which stocks usually love.

Shut Down the Shutdown Chatter

President Trump went back to an old standby this week, threatening to force a government shutdown if Congress doesn’t approve funding for a border wall in a bill to extend government funding past September 30. Ordinarily, this would probably prompt us to write some standard commentary on how government shutdowns have never caused bear markets or recessions and often haven’t even accompanied short-term market volatility. We might include a snazzy table showing returns during and after all shutdowns since 1976, perhaps with a footnote debating whether this year’s brief shutdowns even count, seeing as how January’s ran during the MLK holiday weekend and February’s lasted just nine hours, all of which were at night. We would probably insert some jaded jokes about politicians being self-interested and using this, that or the other as wedge issues for campaigning.

But this time, we aren’t sure we see the point of a full-length commentary. The likelihood the government shuts down for any meaningful length of time on the eve of November’s midterms probably rounds to zero, as it would be political quicksand for all involved—and all involved want to get re-elected above all else. Whether that means Congress compromises on the wall or President Trump begrudgingly signs legislation that doesn’t include it, we have no idea. But we are fairly certain no one wants to have furloughed civil servants and National Park rangers distracting from their campaigns. And if it starts looking like we could be wrong? Which is of course possible! Then we will be sure to get you that snazzy table and a few hundred words of history, analysis and jokes to go with it.

Enjoy your weekend!