Podcast Summary
Political Impact on Markets: Markets react quickly to political events but predicting their reactions can be challenging due to the complex interplay of various factors.
Markets are highly attuned to political events, but predicting their reactions can be challenging. During the podcast discussion on "Unhedged," Katie Martin and Robert Armstrong explored the impact of elections on markets, highlighting various instances where political changes have affected currency values in Mexico and India. Armstrong emphasized that markets are quick to incorporate political information and can be as informed about the economic consequences of elections as it's possible to be. Despite the markets' sophistication, there is still uncertainty regarding their reactions due to the complex interplay of various factors. Additionally, Armstrong made a humorous announcement that he is running for president but acknowledged that his platform, which emphasizes the limited ability to outsmart markets with political knowledge, might not be a winning strategy. Overall, the discussion underscores the importance of understanding the markets' sensitivity to political events while acknowledging the inherent unpredictability of their reactions.
Political events: Unexpected political events can cause significant market volatility, as demonstrated by the impact of Mexico's first female president's election and India's election results on their respective markets.
Unexpected political events, even if they were predicted to some extent, can have significant impacts on financial markets. For instance, the election of Mexico's first female president, Claudia Scheinbaum, resulted in a sharp decline in the Mexican peso and stocks due to concerns over potential constitutional changes. Similarly, the exit polls in India suggested a strong victory for Prime Minister Narendra Modi, leading to record high stocks. However, the actual results showed a diminished mandate for his party, causing a reversal in market sentiment. These events underscore the importance of keeping a close eye on political developments and their potential implications for financial markets.
Indian stock market volatility: Unexpected election results caused significant volatility in the Indian stock market, specifically regarding stocks connected to a close associate of Indian Prime Minister Narendra Modi. The markets had been performing well due to Modi's business-friendly reputation, but the potential loss of his party's majority has caused uncertainty and sent stocks down.
The Indian stock market experienced significant volatility following unexpected election results, specifically regarding stocks connected to Gautam Adani, a close associate of Indian Prime Minister Narendra Modi. The markets had been performing well due to Modi's business-friendly reputation, but a potential loss of his party's majority has caused uncertainty and sent stocks down. While it's impossible to know for sure if anyone could have predicted and profited from this outcome, many individuals and firms offer their political insights for a fee. In the case of the Indian election, this shift was not entirely unexpected, but the markets' lack of reaction could be due to the long-term anticipation of this potential outcome.
UK Election, US Election: Markets are currently relaxed about a possible Labour victory in the UK elections, while Trump is ahead in US polls but past attempts to predict markets based on election results have not been successful
Despite the Conservative Party's potential return to power in the UK leading to market concerns in the past, markets are currently relaxed about a possible Labour victory on July 4th. Regarding the US presidential election, the best guess based on polls, particularly in swing states, is that Donald Trump is ahead, but history has shown that trying to outwit the polls with theories of shy voters has not been successful. Some believe a Trump win would lead to inflation due to increased deficits from tax cuts, harsh tariffs, and a compliant Federal Reserve chair. However, the markets' reaction to such an outcome is uncertain, and past attempts to predict the markets based on election results have not been reliable.
Politics and Economy: Predicting political outcomes and their potential economic implications with certainty is challenging and risky. Focus on planning for various outcomes instead.
Predicting political outcomes and their potential economic implications with certainty is a challenging task. The discussion revolved around the possibility of Donald Trump becoming the Fed chair and the potential economic consequences of his policies. While some policies, such as tariffs and tax cuts, could be inflationary, others, like a crackdown on immigration, have helped keep inflation in check. However, the speaker cautioned against trying to predict Trump's behavior or the outcome of elections for the sake of earning "geopolitical alpha." This approach, which involves trying to outsmart the polls and markets, is not a reliable way to make significant profits. The speaker also noted that it's difficult to know who controls the House and Senate, adding another layer of uncertainty to the equation. Ultimately, it's important for individuals and organizations to plan for various outcomes, including inflationary ones, but making predictions based on political events alone is a risky proposition.
Fed's interest rate decision before election: The Fed's decision to adjust interest rates before an election is driven more by their concern for historical legacy and maintaining impartiality, rather than political pressure.
The Federal Reserve's decision to adjust interest rates before an election is influenced more by their concern for their historical legacy and maintaining impartiality, rather than political pressure. While they claim to be data-dependent and not influenced by politics, their actions may still be swayed by the potential reputational risk associated with getting it wrong, especially if it leads to inflation or a struggling economy. Ultimately, their primary focus is on maintaining the stability of the economy and protecting their reputation, rather than political considerations.
Geopolitical events and stock markets: Geopolitical events may not always result in significant stock market movements as the market may have already factored in potential outcomes
While geopolitical events can be unpredictable and have significant real-world consequences, their impact on financial markets, particularly stocks, may not be as clear-cut as one might expect. Historically, major events like wars and political upheavals have not always resulted in significant market movements. This is because the market may already have factored in the potential outcomes, and the actual outcome may not differ significantly from what was expected. For instance, if a candidate known for promising tax cuts, like Donald Trump, gets elected, the market may respond positively due to the anticipated economic stimulus, even if the actual implementation of tax cuts is uncertain. However, the impact on other markets, such as bonds or markets in other countries, can be more complex and uncertain, depending on various factors. Ultimately, it's important to remember that while geopolitical events can shake up markets, the market's response is not always straightforward or predictable.
US Presidential Election Impact on Stock Market: The outcome of the US presidential election, whether it's a second term for President Biden or a change in leadership, is unlikely to have a significant negative impact on the stock market. However, if a new president expresses opposition to stock buybacks, it could potentially put downward pressure on stock prices.
The outcome of the US presidential election, whether it's a second term for President Biden or a change in leadership, is unlikely to have a significant negative impact on the stock market. During Biden's tenure, the stock market has continued to rise. However, if Rob Armstrong were to become president, he expressed a personal opinion that he would be "short stock based compensation." This refers to the practice of companies buying back shares to prevent dilution caused by vesting employee stock options. Armstrong believes that this trend could lead to a large number of shares needing to be bought back, potentially putting downward pressure on stock prices. Despite this potential concern, the overall outlook for the stock market remains positive, with ongoing economic recovery and continued growth prospects.
Slubbing in Financial Reporting: Ignoring stock-based compensation in financial reporting, a common practice among young growing tech companies, is harmful and should be stopped.
Ignoring stock-based compensation in financial reporting is a common practice among young growing tech companies, but it is a bad idea. This practice, known as "slubbing," or not accounting for stock-based compensation as an expense, is something that should be stopped. The speaker, who is against this practice, suggests that when they become president, they will put an end to it. The speaker then shares a personal anecdote about dealing with a different kind of "slugs" in his garden, but the analogy is clear - both slugs in the garden and slubbing in financial reporting are things to be dealt with and eliminated. If you have effective methods for deterring slugs in your garden, or for reporting stock-based compensation accurately, please share them with Katie.martin@ft.com.
Feet Premium podcast: Feet Premium subscribers can access the 'Unhedged' podcast for free and the unhedged newsletter, while non-subscribers can try a 30-day free trial.
"Unhedged," a podcast produced by Jake Harper and edited by Brian Erstat, is now available for free to Feet Premium subscribers. For those not yet subscribed, a 30-day free trial is offered at feet.com/unhedgedoffer. Cheryl Brumley, Feet's global head of audio, oversaw the project, with special thanks to Laura Clark, Alastair Mackey, Greta Cohn, and Natalie Sadler. Hosted by Katie Martin, "Unhedged" is a must-listen for those interested in staying informed on current events. By subscribing to Feet Premium, listeners can access the unhedged newsletter in addition to the podcast.