Author Topic: Is authoritarianism/populism good for stock returns?  (Read 1519 times)

ChpBstrd

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Is authoritarianism/populism good for stock returns?
« on: May 05, 2017, 12:45:27 PM »
Interesting analysis in Bloomberg:


https://www.bloomberg.com/news/articles/2017-05-02/populism-it-turns-out-is-absolutely-great-for-stock-returns


My thoughts? Most of these countries turned to authoritarians/populists during periods of poor economic performance, and the leaders simply rode the business cycle. The US, however, turned this direction with a 5% unemployment rate at an economic high water moment, so results may vary. Also, the difference between stock and bond performance is odd. If investors consider a country's bonds to be at risk of default, is it really a good idea to own stocks there?

Open Space

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Re: Is authoritarianism/populism good for stock returns?
« Reply #1 on: May 06, 2017, 09:00:16 PM »
Bridgewater published a report on populism recently.  I didn't read very much of it, but it looks extensive.

https://www.bridgewater.com/research-library/daily-observations/

taiwwa

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Re: Is authoritarianism/populism good for stock returns?
« Reply #2 on: May 07, 2017, 07:58:49 AM »
Well, populist leaders tend to not make investments or do any of the unpopular necessary stuff. What happens usually is they squander the surplus that their predecessors left. So while they are in office they benefit from their predecessor's unpopular choices, those unpopular choices both create the surplus and create the conditions of discontent for the populist. And simultaneously, the populist leader unleashes an irrationality within the stock market itself, because the stock market is people making decisions.

So the expectation is a "sugar high" followed by a crash of some sort.

If you look at it in our history, there is unpopular Carter followed by sugar Reagan. GHWB suffered from the crash following Reagan, resulting in Clinton. Clinton was elected on populism but by his second term had created surpluses. GWB squandered the 90's surplus. Obama inherited the mess from GWB and spent his time making unpopular reforms, which mostly is reflected in his party's decimation down ballot. Now we have Trump.

Trump is incompetent. Right now he is riding the surplus from Obama. At best Trump will prove ineffectual. At worst he actually passes a few things and that leaves a mess for the guy after to clean up. I do not expect a Venezuela like situation, but Trump certainly does resemble Chavez in temperament.

maizeman

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Re: Is authoritarianism/populism good for stock returns?
« Reply #3 on: May 07, 2017, 08:17:10 AM »
Also, the difference between stock and bond performance is odd. If investors consider a country's bonds to be at risk of default, is it really a good idea to own stocks there?

The article keeps using the term "dollar bonds." If this had meant "the value of this country's bonds in dollar terms" it would have made sense because, even in the absence of default, higher inflation from more government spending would drive down the value of bonds and drive up stock market valuations (both directly from inflation increasing earnings which leads to increased share prices is PE ratios stay fixed, and indirectly because fear of inflation gets people move money from bonds into stocks driving up stock prices). However, it looks like at least Hungary and the Philippines issue actual bonds denominated in dollars so that's probably what the article is referring to.

Which is all a long winded way of saying: yes, I agree that's weird.

SwordGuy

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Re: Is authoritarianism/populism good for stock returns?
« Reply #4 on: May 07, 2017, 08:40:30 AM »
The people in Berlin thought authoritarianism brought prosperity.

By 1945, however, they had changed their minds about that.

Here's Berlin:

rocketpj

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Re: Is authoritarianism/populism good for stock returns?
« Reply #5 on: May 07, 2017, 09:38:28 AM »
Authoritarianism is good for returns if you are invested in things that go boom, but not for the country as a whole.

Typically authoritarians start on an 'only I/we can fix the problems' platform.  They get in, run into reality at full speed, and quickly start covering their asses for their inability to deliver what was promised.  First, blame the predecessors, second, blame the 'enemy du jour'.  If necessary, start a war and hide behind the flag.

Meanwhile, they don't trust anyone who isn't a loyalist insider, so they tend to favour those loyalists and give them the plums.  This is not free market economics, and tends to be quite inefficient and damaging to the economy as a whole.

waltworks

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Re: Is authoritarianism/populism good for stock returns?
« Reply #6 on: May 07, 2017, 01:08:22 PM »
Populism is IMO sort of comparable to direct democracy... ie "those eggheads/bureaucrats/snobs don't know how to do anything! I have a simple answer!"

Of course, the answers usually aren't all that simple and the solutions fail or backfire horribly.

That said, trying to invest based on politics is just market timing. You are unlikely to be happy with the results. Just buy and hold.

-W

ChpBstrd

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Re: Is authoritarianism/populism good for stock returns?
« Reply #7 on: May 07, 2017, 08:59:41 PM »
Well, populist leaders tend to not make investments or do any of the unpopular necessary stuff. What happens usually is they squander the surplus that their predecessors left. So while they are in office they benefit from their predecessor's unpopular choices, those unpopular choices both create the surplus and create the conditions of discontent for the populist. And simultaneously, the populist leader unleashes an irrationality within the stock market itself, because the stock market is people making decisions.

So the expectation is a "sugar high" followed by a crash of some sort.

If you look at it in our history, there is unpopular Carter followed by sugar Reagan. GHWB suffered from the crash following Reagan, resulting in Clinton. Clinton was elected on populism but by his second term had created surpluses. GWB squandered the 90's surplus. Obama inherited the mess from GWB and spent his time making unpopular reforms, which mostly is reflected in his party's decimation down ballot. Now we have Trump.
Interesting framework. The surpluses you describe could be budget surpluses, fresh infrastructure, peace dividends, a generation of well-educated children, the results of politically costly reforms, etc. Perhaps any politician who delivers results is followed/defeated by a politician who wants to essentially cash out these investments.

However, this flexibility is also a flaw. If Reagan, Clinton, and Obama won because of economic dissatisfaction, one must shift gears to say Trump won because of some other form of dissatisfaction. The economy and stock market had been steadily improving for years, and unemployment was near record lows for the U.S. Perhaps our economic/budgetary surplus was dwarfed by a cultural deficit.

RangerOne

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Re: Is authoritarianism/populism good for stock returns?
« Reply #8 on: May 09, 2017, 02:27:49 PM »
The numbers economy wise for the country have been good. But as with all economic stories they tend to not hold true for every unique demographic. Jobs in manufacturing have been suffering for decades, and skilled labor need drying up in these areas has clearly negatively impacted may rural communities.

I personally think Trump is still full of shit because he doesn't have a real plan beyond the bluster. Still he had a message for economic improvement that made sense to a large chunk of critical voters.

But the stock market rally shortly after the election I believe had nothing to do with Trumps populism and was instead a reaction to at a bare minimum the near certainty that a fully republican controlled government will result in corporate tax reform. And deregulation. These are major points that offer a great deal to look forward to in gas energy sectors, banking, telecommunications, and the list goes on. None of this is really populism, it has been the Republican party line for at least the past 2 decades. Deregulation isn't really a populist position, though it has become partisan.

His populist views actually pose a risk to our markets. Though in the first 100 days some of those fears have been temporarily muted.

Imposing trade taxes and backing out of NAFTA are a big risk, though he has back peddled for now on China and a full stop on NAFTA.

Adding new restrictions to H1B1 Visas poses a large risk to tech markets since a non-trivial portion of our engineering talent, especially in software, is fueled by foreign workers. On the lower end scaring poor immigrants could harm some farmers.

In summary I think in general what you see is early optimism about the typical Republican governing style we have come to expect. While some of his more risky stances having materialized into anything concrete enough to harm us economically yet.

So his populist stances on immigration and trade are largely bad for an economy like ours.

taiwwa

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Re: Is authoritarianism/populism good for stock returns?
« Reply #9 on: May 09, 2017, 04:07:23 PM »
The numbers economy wise for the country have been good. But as with all economic stories they tend to not hold true for every unique demographic. Jobs in manufacturing have been suffering for decades, and skilled labor need drying up in these areas has clearly negatively impacted may rural communities.

I personally think Trump is still full of shit because he doesn't have a real plan beyond the bluster. Still he had a message for economic improvement that made sense to a large chunk of critical voters.

But the stock market rally shortly after the election I believe had nothing to do with Trumps populism and was instead a reaction to at a bare minimum the near certainty that a fully republican controlled government will result in corporate tax reform. And deregulation. These are major points that offer a great deal to look forward to in gas energy sectors, banking, telecommunications, and the list goes on. None of this is really populism, it has been the Republican party line for at least the past 2 decades. Deregulation isn't really a populist position, though it has become partisan.

His populist views actually pose a risk to our markets. Though in the first 100 days some of those fears have been temporarily muted.

Imposing trade taxes and backing out of NAFTA are a big risk, though he has back peddled for now on China and a full stop on NAFTA.

Adding new restrictions to H1B1 Visas poses a large risk to tech markets since a non-trivial portion of our engineering talent, especially in software, is fueled by foreign workers. On the lower end scaring poor immigrants could harm some farmers.

In summary I think in general what you see is early optimism about the typical Republican governing style we have come to expect. While some of his more risky stances having materialized into anything concrete enough to harm us economically yet.

So his populist stances on immigration and trade are largely bad for an economy like ours.

I'd argue that an additional problem with immigration restrictions is that it alienates foreign investors. It is obvious I think that the US stock market boom has been driven largely by foreign buyers, similar to NYC real estate. Right now, the US is the number one destination for laundered funds by corrupt foreign elites.

While immigrant labor is essential for farming, because with a global market, if the price of American produce becomes too high, then the fields simply will not be tilled, have you seen videos of the farm workers? It is awful. They are stooped over picking berries off of the ground. Cheap labor has stymied any need for innovation.