From a Motley Fool email:
Morgan Housel[1]: A lot of what goes on in investing is related to politics, particularly the triggers of recessions and bear markets and whatnot. So if you are an investor who says, “I’m not into politics. I’m just an investor, I don’t pay attention to politics,” I think that’s fine, and it’s fine if you’re willing to put up with recessions and bear markets, which is a great attitude — but the fact is that politics plays a big role in investing. If you’re just looking at investing through the lens of finance, there’s all these other forces that have a big impact on it. And if you’re ignoring that, then you’re probably going to have an experience that is vastly different from what you expect.
If you get trapped within your own field and ignore everything else that makes a difference, it’s hard to move ahead. It’s a special kind of stupid. [July 28, 2019]
It’s easy enough to observe the politics motivating tariffs, both international and domestic, and how they move markets and industries. Indeed, yesterday’s announcement from the White House and from China that a deal is nearing completion is a result of politics – from the trade war motivating it to the need of Trump to pacify his agricultural base, who were reportedly in a near panic over the summer. Will they forget the lessons of Trump? Can he continue to squall about their “patriotic sacrifices” with success?
But there’s another, deeper reason for markets to remain jumpy, and that’s the infiltration of the private sector into the public sector. As much as I’d like to believe that companies running into the simple realities of the market will behave in a rational manner, it’s difficult in the face of evidence of some companies steadfastly denying scientific evidence that doesn’t happen to suit their business models. For example, the epic tobacco lobby war with the science and government concerning the evidence that tobacco use leads to a substantially increased risk of lung cancer. Studies of how industries “capture” their regulatory agencies engenders further distrust. These incidents come from prioritizing profits, or even corporate survival, over societal health, and that in turn denigrates the worth and meaning of the word ‘truth.’
Last I noticed, the lie count for President Trump was up over 13,000, making him the “bigly bestest mostest” Presidential liar ever, without even a close competitor. In fact, I doubt there’s an American politician who can compete with him – ever. Further, his distaste for expertise, and his claims to being an expert at damn near everything, are an infection for which the Republican Party has no internal cure: ambitious people need only sign on to Trump’s predilections in order to advance up the ladder; their election campaigns need not consult with scientists or anyone else but political consultants: simply throw out the lie that will please the audience. The only cure will have to come from voters exhausted by the mendacity of winning Republican candidates, and then only discovered while and after the winner has been in office. Research former Governor Bevin (R-KY) for an example.
The consequence of Trump running for and winning the Presidency, rather than losing and having the GOP collapse in a metaphorical nuclear blaze, as Bruce Bartlett thought would happen, is quite consequential for the markets. To an extent, we can recognize the character flaws[2] which drive our political leaders, but their actions, taken out of self-interest rather than public disinterest, are more difficult to predict. We can know that such characters tend to be driven by short-term goals rather than long-term goals, which makes it that much more difficult for the long-term investor to select proper investments. The result of the immense public debt Trump is building are difficult to predict, as economics is such a mix of causal chains coming from mass psychology and the subtleties of the market. For example, when Quantitative Easing was used to rescue certain financial institutions during the Great Recession, inflation was on the lips of many amateur economists, but it never happened.
But we can guess that negative consequences in the mid-term are not out of bounds. Trump cries out for re-election, and he’ll do anything he can to get there, damn the consequences. Fortunately, his own selection at the Fed, Jerome Powell, is independent of formal influence, and so there’s some widely respected discipline there. But he cannot control Trump’s trade wars, lack of discipline, and his lack of respect for expertise and science.
And, so, as Trump and the Republicans continue to believe in their false economic ideologies and chase their short-term goals, the investing community will continue to face a difficult challenge.
1 I seem to remember reading somewhat that Housel has since left TMF.
2 I use flaw only because I cannot think of a more descriptive noun at the moment.
