Philippine Elections: So Where Is The Election Failure?

Since the start of the year, we’ve been repeatedly told by mainstream media that that domestic markets had been affected by jitters arising out of a 'general election failure'.

Yet, over the months, the markets steadily climbed and signalled the opposite to what was being reported.

And we argued in Why The Presidential Elections Will Have Little Impact On Philippine Markets and Philippine Markets And Elections: What People Do Against What People Say, there is simply little incentives for the outgoing administration to destablize elections given the balance of risk-reward tradeoffs.

And any aspiring political groups are also unlikely to desire a tumultuous outcome, except probably for those who are on the extreme ends and are not in active in the present political process. But the latter would have a different version of troublemaking than the peddled automation based failure.

In short, media and the politically obsessed crowd had been forcing a causal relationship even when there was little evidence for it, a behavioural fallacy known as the available bias.

Last week, this so called election jitters had even been more pronounced [see Has Election Jitters "Caused" Falling Philippine Peso and Stocks?]. Yet media and 'experts' ignored or downplayed the role of external evidences, even if domestic markets were indeed tracking external developments more than domestic politics.

With over 50% of votes tallied, it safe to ask, where is all the brouhaha over election jitters? Apparently only in the imaginative minds of the politically frenzied crowd.

Today, we will see the same biased reporting.

Following a massive rally in the Phisix 3.85% which likely reflects on the rally in Wall Street (3%+) and in Europe (+5%) last night, aside from a rebounding Peso, in response to the monster bailout of the Euro currency, news reports will focus on associating the current gains with domestic politics-a vote for the new administration!

Of course local markets will likely have a "presidential honeymoon cycle" as with the previous, but this will be more of a rationalization fueled by a global zero bound interest rate regime and worldwide inflationism.

Bottom line: a culture obsessed with politics is likely to misread and gloss over the genuine factors driving the markets or the economy.

US Political Economy: History Repeats Itself

In our previous article Has The Barack Obama Presidency Been Driven By Market Dynamics?, we posited that activities in the marketplace, which has been reflective of present and future economic dimensions, may have served as an important psychological driving force to voter selection during elections.

Apparently, we learned that this hasn’t been the first time.

According to the Economist, ``ONLY twice since the 1920s has economic angst played such an important role in a presidential election—and both the previous occasions make imperfect templates. When Franklin Roosevelt defeated Herbert Hoover in 1932, the Depression had been going on for three years, thousands of banks had failed and unemployment was 25%. When Ronald Reagan beat Jimmy Carter in 1980, inflation had been high for years, hovering at 12% as voters headed to the polls. By contrast, the crisis facing Barack Obama has been underway for just over year, with unemployment standing at 6.5% according to figures published on November 7th.” (underscore mine)

Let us take a look at how the markets performed during the aforementioned periods.

The Dow Jones Industrials prior to the FDR-Hoover 1932 Presidential elections

Chart courtesy of Chartsrus.com

The S&P 500 prior to the Reagan-Carter 1980 Presidential Elections

Chart courtesy of chartrus.com

As Charles Kindleberger wrote in Manias, Panics and Crashes A History of Financial Crises ``For historians each event is unique. Economics, however, maintains that forces in society and nature behave in repetitive ways. History is particular; economics is general."