Market Analysis

Random Musings on Markets 2019: Exile on Musing St.

A collection of odd financial news for your weekend enjoyment.

In this Friday’s not-every-Friday roundup of off-center financial news, we bring you a look at Spanish government gridlock, a new study arguing politicians are bad for your health, potential ramifications of Germany’s official declaration that hangovers are an illness and more attempts to buy Greenland—and we roll out the welcome mat for one bank’s new CEO.

Generalissimo Francisco Franco Is Still Dead

Spain is officially heading for its second general election this year in November after party leaders exhausted their attempt to form a government following April’s contest. Polls suggest voters are likely to return another hung Parliament, rendering a continued stalemate likely. Any government that emerges will probably be a weak coalition or minority government. Many people don’t like this outcome, because it amounts to a lot of squabbling and nothing major happening. But stocks generally like the absence of radical change, and Spain’s recent history suggests its next fractured government won’t do much. After all, about the only major thing its last minority government accomplished was … exhuming Franco.

You see, the longtime dictator—who is still dead—was buried in a state mausoleum called the Valley of the Fallen upon passing in 1975. Ordinarily, it isn’t a big deal to lay a longtime head of state to rest in such grandeur. But Franco was (like most dictators) a rather brutal guy. Further, the Valley of the Fallen is also where almost 34,000 casualties of the Spanish Civil War are buried—including many who fought against Franco’s fascists. Moving Franco away from his victims has been a long-term goal of Spain’s center-left Social Democratic Party.

This has long been a rather controversial move, as Franco still has a fairly considerable number of followers in Spain.[i] Yet Spain’s legislature passed the bill ordering Franco’s exhumation a year ago, when Socialist Prime Minister Pedro Sanchez led a minority government. Franco’s descendants mounted a legal challenge, which went to the Supreme Court. That body rejected the family’s appeal this week, allowing the exhumation to proceed. Once that happens, Franco’s remains will join his wife’s in the family mausoleum at a state cemetery on the outskirts of Madrid.

When Sanchez took office after former Prime Minster Mariano Rajoy’s ouster in the wake of a corruption scandal, many feared a left-leaning administration undoing Rajoy’s pro-market reforms. But that didn’t happen. As a general rule, if the most a government can accomplish is digging up the remains of a long-dead dictator and moving them across town, they probably can’t rewrite the labor code or state pension system.

Partisanship Is Killing Americans—and Their Portfolios!

Researchers from the University of Nebraska-Lincoln and University of California-Merced have a warning for you: Your politics are killing you. Ok, maybe that is too hyperbolic. But their research did show there are detrimental effects on both mental and physical health associated with politics. We would add to this: Political obsession is bad for your financial health, too.

In a new study you can peruse at the Public Library of Science’s website, Political Science Professors Kevin B. Smith, Matthew V. Hibbing and John R. Hibbing shared their analysis of a YouGov survey conducted in March 2017. The survey covered 800 American voters they consider broadly representative of the public (the methodology is shared in the white paper) and asked a series of health and stress-related questions usually used in assessing addiction: factors like lost sleep, damaged relationships and more.

Here is something that won’t surprise you: They found that politics are broadly bad for your health. Some 38.0% of respondents said politics had caused them stress, with 18.3% saying they had lost sleep over it. Further, 31.8% said “exposure to media outlets promoting views contrary” to their own drove them “crazy.” A similar 29.3% admitted to “losing their temper over politics.” Not surprisingly, 20.3% said political differences had damaged a friendship. 15.0% admitting to writing things online they regretted.

More than a quarter of respondents said they spend too much time thinking about politics—good awareness! Some 13.1% have vowed to spend less time on politics yet failed to follow through.

We have long had the theory that most politicians are sociopaths. Not in the stabby, Patrick Bateman sense of the term, but in the sense that they use divisiveness and angst as a means to motivate their bases and win a job. That is effectively antisocial behavior. These data, in our view, support that theory.

But they also speak to something we say often ‘round here: Political bias is blinding and can lead to huge portfolio errors. If nearly a third of respondents said just watching contradictory media drove them “crazy,” what about financial pundits’ coverage—and theories—of politics’ influence on markets? If 15% wrote things online they later regretted, what of investment decisions they made in private?

In our experience, investors have a strong tendency to align their stock market outlook with the party they favor—bullish when in power, bearish when out. That held during Obama’s tenure and after Trump’s election in 2016. The University of Michigan’s Consumer Sentiment survey helps illustrate this point. Over the years, UMich has occasionally asked respondents for their political affiliation and tallied sentiment accordingly. They did so only sporadically before 2016’s election, but have done so consistently since. As Exhibit 1 shows, there is a striking divergence by party affiliation.

Exhibit 1: Party Affiliation and Consumer Expectations

 

Source: University of Michigan, as of 9/26/2019. Index of Consumer Sentiment by Political Party, June 2014 – September 2019. Dots indicate actual survey readings in the period before the survey was regularly taken.

The trouble, of course, is that markets don’t favor any political party. This bull market illustrates that near-perfectly. When it began, Democrats controlled the presidency, House and Senate. Starting with 2010’s midterms, the three gradually flipped to the GOP, before 2016 handed all three to them. Then the House shifted back last year. But the bull is still running, despite these shifts. Perhaps that is something to remember this year, as impeachment talk compounds early election chatter. To do otherwise increases the risk partisanship not only threatens your life, but your portfolio too!

Wait, a Hangover Is a What?

This week in bizarre regulations, a German court ruled the maker of a drink purporting to cure or prevent hangovers must cease and desist because a hangover is—wait for it—an illness, and food and drink products can’t claim to cure illness. As the ruling stated: “Information about a food product cannot ascribe any properties for preventing, treating or healing a human illness or give the impression of such a property.” It went on to expand the definition of illness to “even small or temporary disruptions to the normal state or normal activity of the body.” Which, yes, that does seem to describe a hangover.

Anyway, this got us wondering what other things might actually be illnesses and how businesses might need to adjust. For instance, Taco Bell has long winked at partiers, advertising itself as a destination for people with the late-night munchies. But when induced by alcohol or cannabis, it does seem fair to call the munchies “temporary disruptions to the normal state or normal activity of the body,” which we think makes them an illness in Germany? So, does marketing food as the solution for someone with the munchies mean you are claiming to cure an illness? We think this requires further legal study, obviously.

Or, what about when you are in a really boring meeting and need a jolt of energy? Five Hour Energy has built many marketing campaigns around this very thing! But if your lethargy is induced by incessant streams of corporate jargon explaining how to harness synergies and optimize inefficiencies to better interface with stakeholders and dynamically actualize bleeding edge best practices[ii]—temporarily disrupting the normal state or normal activity of your body—is it an illness? Is the drink thus wrongly claiming a cure? What about all those made ill by politics? Would making a chamomile tea spiked with mint, valerian and lemon and marketing it to these folks as a cure for partisan stress now be off limits? We hate when our brilliant business ideas have to die.

We suspect it would be fairly easy to stretch this logic even further and classify extreme annoyance as an illness. After all, it does seem to elevate heart rate and blood pressure—another temporary disruption to the normal state or normal activity of the body. This may have implications for chocolatiers and craft brewers.

If you have suggestions for other potential “illnesses,” hit us up via the feedback link below!

Greenland, Greenland, Greenland Redux

It seems we are not the only ones who had more than a passing fancy with Greenland in the wake of President Trump’s unsuccessful bid to buy the country. According to The Wall Street Journal, home prices there have skyrocketed in the last couple months, with buyers engaging in fierce bidding wars over limited supply.

We get it. Those bright multicolored houses look so cool! As do the picturesque vistas of the mountains and the fjords—perfect for outdoorsy types like us. We could get over the months-long lack of sunlight in winter.

But there is one thing we probably couldn’t get over, which we point out on the very outside chance any of you dear readers are thinking about taking the plunge: the woeful lack of property rights. As the Journal explained, the government owns all of the land. When you own a home, you literally own the house—the government retains the land it is built on. “Because residents own only their house, the government has the right to take back the property, but that rarely happens, [local architect Thomas] Riis said. The lack of private property, however, means no fences between houses, and technically, even planting a garden requires a permit.”

If you don’t think good fences make good neighbors, don’t have a hankering for tending vegetables and totally love paperwork and bureaucracy, then Greenland may still be for you! But if you prefer to own the ground under your feet and think strong property rights are the key to prosperity, we figure Norway’s mountains and fjords may be more up your alley.

The Wait Is Over

Editors’ Note: MarketMinder doesn’t recommend individual securities. The mention here is solely to highlight a broader (or in this case, potentially entertaining) point. We aren’t advising you take any action—buy, sell, hold, free deliver, gift—with respect to the company mentioned here.

With that legalese out of the way, allow us to be among the first to welcome Wells Fargo’s new CEO—former Bank of New York/Mellon (BoNY—the best bank acronym by far) CEO Charles Scharf. This caps a six-month long hunt that reminded us of Spain’s and Belgium’s lengthy attempts to form governments.

Anyway, we figure most folks considering taking this job were doing so with eyes wide open. But in the event that Mr. Scharf needs a reminder, here is what to expect: a grilling by various US government panels at regular intervals.

Now, at BoNY, Mr. Scharf had to endure some of these. But he got a lot less scrutiny than most, considering he could easily dodge most questions in front of the House Financial Services Committee by pointing out that BoNY was a custody bank with next to no consumer arm. That is how he addressed many of the committee’s questions this summer when they peppered bank CEOs over things like lending practices in lower income areas or the student loan “crisis.”[iii]

But sorry, Charlie, that is all different now. Scharf now heads the most hated megabank in America, one that politicians love to pillory more than any other. Of course, Wells Fargo brought much of this angst upon themselves, what with the fake account scandal and other things. But at this point, trotting the Wells Fargo CEO out in front of Congress for a flogging is politics as usual. So we figure it won’t be long before Scharf has his turn. We hope he is already practicing his answers—Congress didn’t like his predecessor Tim Sloan’s real much, which ultimately led to his downfall.

We sincerely hope Wells is making this worth it for Mr. Scharf. Because this is a big, high-profile change that will likely mean a lot more headaches.



[i] Perhaps this seems strange, but it isn’t that uncommon for folks—even in formerly totalitarian states—to long for the old days. Historian Adam Hochschild’s excellent book titled, The Unquiet Ghost: Russians Remember Stalin, does a good job of documenting this in the course of a broader look at Post-Soviet Russia’s views of the deceased dictator.

[ii] Don’t talk like this. Also, Hat Tip: The Wall Street Journal’s “Business Buzzwords Generator.”

[iii] The actual answer here, as JPMorganChase’s Jamie Dimon pointed out at the time, is that banks have very little to do with student lending, considering the government nationalized education finance in 2010. But Scharf didn’t have to go there because BoNY is a custody bank.


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*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.