Hundreds of millions of dollars spent; thousands of hours of media time consumed; incessant political punditry from the usual TV sources interspersed with a constant flow of disinformation from the auto-bot manipulators (even robocall fake voices); and continuous poisonous hate messaging – all this targeted to Iowa and New Hampshire. To quote the late CBS anchor Walter Cronkite “and that’s the way it is.”
Most of it was ignored by most market agents as they focused on earnings reports (they’re trending up) and the Fed (it’s on hold) and inflation (trending to low single digits) and interest rates (seem to be stabilizing) and economic growth (low growth rate but positive in direction). That stink from politics which many turned off and others ignored has clarified into what appears to be a Biden-Trump rematch coming at us whether we like it not.
Observe that $120 million was spent just in the Iowa media (“Iowa Republican caucus sets new record for state political ad buys: $120 million,” https://www.cnbc.com/2024/01/15/iowa-republican-caucus-sets-new-record-for-state-political-ad-buys-.html). Add the costs of the thousands of on-the-ground campaign workers. Add the costs of security. (Note how the State of Florida’s taxpayers footed costs for a certain dropout candidate.) In Iowa, media buys alone cost about $1100 per actual vote. For more detail on the vote breakdown, see the graphic below.
I don’t know about you, but the blistering affront of hater politics is enough to make me want to watch reruns of Antiques Roadshow to escape.
Now let’s get to serious stuff.
I want to thank readers for their comments about last Sunday’s note and particularly for the comments about the Interview of Frank Luntz by Ed D’Agostino. (See “Politics & Markets,” https://www.cumber.com/market-commentary/politics-markets.) And please let me apologize for a missing paragraph last Sunday. I was in Cuba with the GIC delegation when the piece was prepared for publication, so I missed the final read. Here’s the missing opening paragraph:
In my opinion, the border and the US labor force are paramount political issues in 2024. The Biden administration has been viewed by some as weak and indecisive, and recurring border failures appear on the nightly news without respite. That is one side of the border-issues divide.
Please note that reader reactions to last Sunday’s missive were as varied as the political spectrum, with strong Trump supporters critical and Biden defenders critical as well. Readers who missed it may find the narrative and the Luntz interview via the link above.
Okay, let’s segue to markets and politics for more discussion.
Markets reacted briefly to Trump’s Iowa caucus victory. Example: The Mexican peso sold off against the dollar the next day. US dollar adjustment from Trump policy moves is viewed by many as a likely outcome if Trump is nominated and gets elected. Some few claimed that the stock market rally to a new high was because of Trump. I’m not so sure. “Coincidence is not causality,” as a few of my economist friends like to say. But market agents remember that Trump ignored deficit warnings, ran huge deficits, cut taxes, and imposed tariffs. I believe these items will emerge as important in the coming election debate over the next few months.
One reader was very specific in criticizing me for not listing abortion as a “key” dominant issue for the election outcomes. In my opinion, that remains an open question. If abortion rights do rise to the level of a critical decision item, then the Trump team may be in trouble. Polling and the results of referenda in several states indicate that it could be so. We shall see if abortion rights can overpower economics, defense, and the border as the issue that crystallizes American voters.
Bloomberg offered an interesting column after the Iowa results: “Trump’s 2016 Win Shook Markets. Traders Won’t Get Fooled Again,” https://www.bloomberg.com/news/articles/2024-01-21/trump-s-2016-win-shook-markets-traders-won-t-get-fooled-again. It’s worth the read to obtain an array of views about the coming election market cycle.
Here’s some data from Iowa. (Hat tips to the Associated Press, the State of Iowa, and Bloomberg’s Mike McKee.) Perhaps these numbers will give market agents some pause about reacting too soon in election-cycle markets. Would you make a trade based on 2.5% of the Iowa voting population?
Now lets’ get to New Hampshire, where Biden was a write-in because of the Democrat Party rules change and where the Haley-Trump faceoff became the contest after DeSantis dropped out on that infamous Sunday night. We now have results from a fully operated election. Unlike in Iowa, these are voters who went into a polling place and cast a secret ballot.
And we all know the results. With Trump successful in back-to-back primaries and Biden clearly successful, the markets yawned and moved on. There were no market shocks after the New Hampshire results became apparent.
In media interviews prior to when the NH results were known, I offered the rationale that it was still too soon to see a market reaction tied to the election outcome. I believe that is still the case. So many things can happen before we get to a serious market response. And remember that in a world with two regional shooting wars and other turmoil, bad actors have an incentive to provide surprises. And Trump’s legal battles could bring a surprise at any time.
For now, the market reaction to politics is business as usual. We’re no longer fully invested in the US Equity ETF portfolio. We took some tech sector profits and raised some cash. We continue to be overweight the defense sector. We are also overweight the small caps.
Let’s conclude with three items.
First is the CNBC interview with Jamie Dimon at Davos: “Jamie Dimon warns ‘all these very powerful forces’ will affect U.S. economy in 2024 and 2025,” https://www.youtube.com/watch?v=-gnQJZW0CyQ. Hat tip to Noel E. for sending me a reminder.
Next, in Florida, there was briefly a proposal advancing in the legislature to use $5 million of taxpayer money to help pay Trump’s legal expenses: “Florida plan to have taxpayers pay Trump’s legal bills nixed after DeSantis veto threat,” https://www.politico.com/news/2024/01/22/florida-trump-legal-bills-00136984. SB 1740, which was filed earlier this month by Senator Ileana Garcia (R-Miami), would have created the Defending Freedom Fighters Trust Fund. The bill had the support of Florida Chief Financial Officer Jimmy Patronis. (See “New Florida bill would allow up to $5 million to pay for Trump legal fees,” https://www.wfla.com/news/florida/new-florida-bill-would-allow-up-to-5-million-to-pay-for-trump-legal-fees.) DeSantis did the right thing by threatening a veto, in my opinion.
Lastly, the State of Florida is floating a large municipal bond issue to beef up its troubled insurance fund: “Florida Sells Bonds to Backstop Its Homeowner’s Insurance Industry,”https://www.bnnbloomberg.ca/florida-sells-bonds-to-backstop-its-homeowner-s-insurance-industry-1.1938142.
The insurance issue looms as a seriously big one, with hurricane season starting in only a few months. If you own a Florida house or condo, you may want to compare your insurance cost with that in prior years and look at the details of the coverage. Read the fine print on hurricane exclusions.
David R. Kotok
Chief Investment Officer
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