What is the Stock Market Watching?

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The Bernank applies statistical analysis to the way the stock market has reacted to oil prices. Pointer from Mark Thoma.

Amni Rusli points to a Merrill Lynch study of how markets watch central banks. Pointer from Tyler Cowen.

Am I the only one who thinks that the stock market should be watching the election season, and that it should be tanking even more than it already has? On the Democratic side, the defining issue of our time is rich people making too much money and not paying enough of it in taxes. And the government not providing enough freebies to everybody else.

On the Republican side, the defining issue of our time is immigration enforcement. I cannot get on board with that. Are immigration laws even the most important of all the laws that are loosely enforced? I don’t see speed limits being strictly enforced on the Beltway. I don’t see recreational drug laws being strictly enforced on college campuses.

My point is not that I think we should be moving toward strict enforcement of speed limits and drug laws. My point is that “But it’s illegal!” isn’t the argument-clincher on immigration enforcement that a lot of people think it is.

I am not the type of person who is going to say, “inequality and immigration must be important, because so many people think so.” Instead, I am just going to say that the people who are voting to express themselves on those issues are, in my opinion, flat-out wrong.

I don’t think of myself as a defender of the political establishment. But when see where Sanders supporters and Trump supporters are taking this campaign, it’s enough to make me want to send valentines to Mitch McConnell and John Boehner.

What are the issues I worry about? Our country is sleepwalking toward a fiscal meltdown, as the past debts and future unfunded liabilities get larger every year. We have piles and piles of regulations, without knowing whether they are aligned with or working against their intended objectives–but I strongly suspect it’s the latter. We have a substantial share of the population that is poorly integrated into the productive economy and having most of its children out of wedlock. Our response to Islamic terrorism consists of random flailing overseas and massive inconvenience to innocent people at home, so as not to appear to be engaged in the dreaded “profiling.”

But those issues have been crowded out by inequality and immigration. If other investors shared my view of the political environment–and some day they might–stock prices would be less than half of what they are today.

22 thoughts on “What is the Stock Market Watching?”

  1. ” But when see where Sanders supporters and Trump supporters are taking this campaign, it’s enough to make me want to send valentines to Mitch McConnell and John Boehner.”

    That’s why the markets aren’t more spooked, there’s no larger movement likely to take over Congress, just minority groups able to hijack the presidential primary process. If Hilary weren’t so weak a candidate or every single Republican hadn’t decided to run the perceived problem would be a lot less.

    This is a good take on what’s happening with the primaries.

    https://storify.com/cshirky/republican-and-democratic-parties-are-now-host-bod

    I don’t think it’s relevant to Congress changing, so you won’t actually see much of what you fear.

  2. Well put. The question is how will the clash between state and federal pensioners, medicaid, SS, etc and tax payers will be resolved. Given the political climate, it won’t be pretty. Regarding the stock market, you can always sell short ; )

  3. Arnold, how do you square your belief in a “fiscal meltdown” with the complete lack of such fear in the bond market. Wouldn’t shorting US govt bonds be a tremendous profit opportunity in your scenario?

  4. Immigration is fundamentally different that any other issue. Unfortunately political correctness has been very successful in limiting what language we can use to express our ideas so most people fall back on BS concerns about “Enforcing the Law”. And to the extent that one’s concern is about law enforcement, you are right an and they are wrong. However, to the extent that people are concerned about their people being replaced by other people, and to the extant that they realize that all other issues, including fiscal ones, are downstream from immigration then it feels to me that they are right and you are wrong.

    • Exactly right. What seem like the ‘big issues’ (especially on the right) can’t be taken literally at face value, because direct argument about the real issues has been politically delegitimatized and recourse to it is unavailable.

      So people must couch their genuine desires and interests in socially acceptable ways that avoid their culture’s prevailing structure of taboos. Whoever controls the taboos controls the culture.

      If those taboos include effective prohibitions on uttering particular claims or arguments, and any aspiring transgressor can be certain of severe social consequences for saying those things, regardless of how empirically true they may be, then people have no choice but to defend their interests through some of fallback ‘excuse’ and an evasive appeal to a more socially acceptable proxy value.

      Imagine you were in court trying to defend yourself and the judge said you weren’t allowed to present the best exculpatory elements of your case, and if you even tried to admit them into evidence you might as well be confessing to child molestation in his eyes. What do you do now?

      You’ll continue pursuing any outlet remaining to you and advocating for that case with genuine passion. You’ll make your lemons into lemonade even if, were there any other option at all, you’d never drink lemonade.

  5. ” share of the population that is poorly integrated into the productive economy ”

    Importing millions of low skilled Latinos is making this much worse.

    • Yes, five seconds of googling brought me to this Pew report:

      The spread of poverty across the United States that began at the onset of the Great Recession of 2007-2009 and accelerated last year hit one fast-growing demographic group especially hard: Latino children.

      More Latino children are living in poverty—6.1 million in 2010—than children of any other racial or ethnic group. This marks the first time in U.S. history that the single largest group of poor children is not white. In 2010, 37.3% of poor children were Latino, 30.5% were white and 26.6% were black, according to an analysis of new data from the U.S. Census Bureau by the Pew Hispanic Center, a project of the Pew Research Center.

      This negative milestone for Hispanics is a product of their growing numbers, high birth rates and declining economic fortunes. According to the 2010 U.S. Census, Hispanics today make up a record 16.3% of the total U.S. population. But they comprise an even larger share—23.1%—of the nation’s children (Passel, Cohn and Lopez, 2011), a disparity driven mainly by high birth rates among Hispanic immigrants (Pew Hispanic Center, 2011). According to the 2010 Census, some 53.5% of children are white and 14.6% of children are black.

      http://www.pewhispanic.org/2011/09/28/childhood-poverty-among-hispanics-sets-record-leads-nation/

      Seems to me that if you’re worried about the long term fiscal outlook, due to our political class having over-promised various kinds of economic transfers, you ought to be a bit concerned about the demographic situation created by lax immigration law enforcement, because it seems pretty clear to me that these folks make up a large and growing portion of the segment of the population you’re decrying as “poorly integrated into the productive economy and having most of its children out of wedlock.” These poor Hispanic kids simply are not going to grow up and become the net tax paying, middle class wage earners we need in large numbers to alleviate the fiscal crunch that is looming. On the contrary, they’re likely to make things worse.

  6. Arnold writes:

    “On the Republican side, the defining issue of our time is immigration enforcement. I cannot get on board with that. Are immigration laws even the most important of all the laws that are loosely enforced? I don’t see speed limits being strictly enforced on the Beltway. I don’t see recreational drug laws being strictly enforced on college campuses.

    “My point is not that I think we should be moving toward strict enforcement of speed limits and drug laws. My point is that “But it’s illegal!” isn’t the argument-clincher on immigration enforcement that a lot of people think it is.”

    This is just about the most oblivious thing I have seen Arnold write. The problem with immigration is the volume of it that we’ve had and are continuing to have, and which the establishment apparently wants to increase. This may have little impact on holders of economics doctorates from MIT, but it does impact the lives of less fortunately placed American citizens, especially in view of the continuing impact of automation on the job market, sharply reducing our need for the labor of the unskilled former peasants now being herded into the country. The misplaced emphasis on “legality” results from the sacred place accorded immigration and ethnic minorities in the hierarchy of values imposed by our feckless, selfish, vain elites, of both the left and the (phony) right.

    Reasonably enough, people talk about “legality” because they are trying to find a way of objecting to what’s being done to them and their children without being compared to Nazis, slavery advocates and lynch mobs. Of course, these comparisons are going to be made anyway (see e.g. the civil, charitable, well-grounded folks at Econlog).

    I could understand if Arnold wanted to make another tired, canned argument that high-volume immigration is somehow needed and does not, on net, hurt American society (I guess because of the careers it makes possible for wealthy professional women who want to pop out a kid or two while making partner at some corporate law firm). I would not buy such an argument, but at least it would be an attempt to address the real issue raised by immigration – is it good or bad for our society as a whole? But instead Arnold just dismisses the whole question as one of “legality,” as if we could just re-define the problem away by changing the law.

    The foregoing is not a defense of Trump, who, I am confident, would quickly revert to some variation of the establishment position on immigration in the unlikely event he becomes president. He has already given clear hints that such is his intention. The people who support Trump have turned to him out of desperation, because virtually no one else in the national political leadership is listening to them. They are making a mistake in doing so, but they have good reason to be enraged at the weasels of both parties – prominently including St. Ronald Reagan – who have led us into this mess over the last half century.

  7. Our country is sleepwalking toward a fiscal meltdown, as the past debts and future unfunded liabilities get larger every year.
    True but doesn’t Japan go first? And then most of Europe go second? Who knows China demographics without changes goes worse than the US in 20 years? The US economy, debt and demographics is the old bear and shoes joke in which other economies collapse.

    0ur response to Islamic terrorism consists of random flailing overseas and massive inconvenience to innocent people at home, so as not to appear to be engaged in the dreaded “profiling.”
    Then what policies do you support. I wish we simply were like China and ran our foreign policy completely out of the Treasury Department while completely withdrawing from all Mid East battles and support. (We are neutral all Middle East nations including Israel.) Let them have their wars like Europe did with WW1 & WW2. Also, with all the potential of a foreign terrorist attack, the US has not had significant one since 9/11 over 14 years ago. If Bush kept us safe, hasn’t Obama kept us just as safe?

    We have a substantial share of the population that is poorly integrated into the productive economy and having most of its children out of wedlock.
    Again what do you support here? I don’t see how voucher utopia with public schools is going to improve schools in inner cities or former coal mining towns in WV. (What business would invest in their resources in these locations?) Additionally, it seems the biggest problem in the developed world is it take to long for most citizens to have settle career, marriage, and kids until they are 32 which is crashing the birth rate. (Think Japan has 40% less births than they did in the 1950s) How do you grow a society when nobody feels comfortable to have large families.

    • I second this:

      I wish we simply were like China and ran our foreign policy completely out of the Treasury Department while completely withdrawing from all Mid East battles and support. (We are neutral all Middle East nations including Israel.) Let them have their wars like Europe did with WW1 & WW2. Also, with all the potential of a foreign terrorist attack, the US has not had significant one since 9/11 over 14 years ago. If Bush kept us safe, hasn’t Obama kept us just as safe?

  9. Wouldn’t these two issues already be priced in? The only thing that has changed in the last few years would be a modest increase in p(Trump).

    In contrast, there has been big news within the last year regarding both central banks and oil prices.

  10. While I don’t usually agree with Nick, he always makes me think. And he has put down thoughts related to the immigration question.
    It is worth noting that historically Canada has had tightly controlled immigration, so for many Canadians having various limits of who gets in is just normal….there is a whole sheaf of potential policies between Fully Open Borders and Fully Closed Borders

    http://worthwhile.typepad.com/worthwhile_canadian_initi/2015/10/countries-as-clubs-open-borders-and-debtgdp-ratios.html
    http://worthwhile.typepad.com/worthwhile_canadian_initi/2016/01/underinvestment-in-public-clubs.html (wonkish)
    http://worthwhile.typepad.com/worthwhile_canadian_initi/2016/02/importing-people-is-not-like-importing-apples.html (Arguably PSST friendly. Comments contain awesome examples of “economist autism”)

  12. One can vote for Sanders confident nothing will happen as a result. If terrorism is your fear, immigration would be a natural concern.

    • Personally, I think Trump’s supporters got tired of hearing Benghazi!, 40 votes to repeal Obamacare, and all the rest of the political stupidity.

  13. I share your fears. There are major issues rumbling underneath the surface that are difficult to talk about. They may be “toxic” to politicians, rather like the social security is the alleged “third rail” in politics.

    This was a good post. Thank you.

  14. Arnold,

    As a loyal reader I respectfully disagree about immigration. The argument isn’t about about the points you mention, it’s that the pro-immigration side (i.e. the establishment wing of both parties) wants de facto open borders via a cycle of no-enforcement/amnesty. The downside of such a policy (budgetary, social, reduced assimilation of Hispanics) should be obvious.

    • The establishment also wants to increase legal immigration. After all, if we make legal immigration easy enough, there will be no more illegal immigration. Voila – problem solved!

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