We use cookies to provide a user-friendly experience. By continuing to browse this site, you give consent for cookies to be used. To find out more or to set your own preferences please read our Cookie Policy.
We’re not the first to observe the rise of post-truth populism and how public opinion is increasingly shaped by personal beliefs and appeals to emotion, rather than facts. Donald Trump, Nigel Farage, Brazil’s Bolsonaro and our very own Boris (unique in this group in that everyone is on first name terms with him) are all examples of individuals that have done well by exploiting the post-truth world.
Populism isn’t new, but social media is, and this new world has been facilitated in no small part by the social media revolution where, in contrast to most initial assessments, abundant information has not led to cleaner and more transparent decision making by politicians and electorates.
We’re not going to add to what has been written on this subject but we are going to draw a parallel to the political dynamics outlined above and the dynamics in financial markets. Specifically, for “facts” think economic data, for “public opinion” think financial markets and for “social media” think QE (quantitative easing), in the sense that it is also a new ‘technology’ that tends to distort data. In short, in both cases, facts are distorted as they pass through a transmission mechanism to the end user. In both cases, the facts are available but the end user chooses to focus on what suits them best.
To illustrate the point, for most of the post-GFC (Global Financial Crisis) period, bad economic news has not been seen as bad news but good news. In other words, poor economic growth data has been received positively because financial markets assume it will lead to more market-friendly QE. For some time, therefore, markets have been driven by the belief that there is no such thing as bad news. In a very post-truth way, bad news has, effectively, been banned by central bank QE programmes.
To give a recent example, last week saw very poor economic data come out of Germany, with both the German PMI manufacturing and the German IFO business surveys worsening, even though they were previously at multi-year lows. This data adds to the woes for the region but, the same week, the ECB’s Mario Draghi signalled further easing for September. And the can gets kicked…
Without facts, or with the reduced importance of facts, credibility is everything. So far, be it with the recent populists or the central banks, moving to ever more extreme positions has only added to their credibility and their power. Do facts win out in the end? Post-truth is unlikely to go into reverse anytime soon: parties are on an election footing in the UK, and US elections are next year, while in Hong Kong and Russia demonstrations are increasing in scale. Information is not power: power is how information is manipulated.
Drawing analogies between the way markets and electorates are responding to data is not to suggest they are completely different worlds, far from it. We have been drawing the link for some time now between QE and populism, the conduit being inequality. There might be other similarities too. Populist regimes tend to end in an inflationary spiral as politicians try to buy popularity but, eventually, bad news is seen as bad news. Similarly, there have been many that assume the QE experiment will also end in inflation, and well it might, eventually, especially if the pressure for fiscal spending to team up with monetary expansion is realised. But that’s no help in understanding financial markets in the here and now.
In the shorter term, markets will be looking to September, when the Fed and the ECB next meet. Then, they will judge their actions and their communication skills, as without facts there is only the credibility of the manipulator.
Risks:
The value of stock market investments will fluctuate and investors may not get back the original amount invested.
Forecasts are not reliable indicators of future returns.
Important Information
For Investment Professionals only. Not for onward distribution. No other persons should rely on any information contained within this document.
Source for information: Miton as at 30/07/2019 unless otherwise stated.
The views expressed are those of the fund manager at the time of writing and are subject to change without notice. They are not necessarily the views of Miton and do not constitute investment advice.
Miton has used all reasonable efforts to ensure the accuracy of the information contained in the communication, however some information and statistical data has been obtained from external sources. Whilst Miton believes these sources to be reliable, Miton cannot guarantee the reliability, completeness or accuracy of the content or provide a warrantee.
Issued by Miton, a trading name of Miton Asset Management Limited the Investment Manager of the Fund which is authorised and regulated by the Financial Conduct Authority and is registered in England No. 1949322 with its registered office at 6th Floor, Paternoster House, 65 St Paul’s Churchyard, London, EC4M 8AB.
MFP19/327.
Investment professional
This area of the website is intended for investment advisers and other financial intermediaries whose clients are UK tax residents.
The products offered on this website carry a degree of risk. The value of investments will fluctuate, which will cause fund prices to fall as well as rise and you may not get back your original investment. Specific risks are highlighted on the respective investment pages in this website.
By clicking on the button below you confirm you have read and agree the Terms & Conditions and are an investment adviser or other financial intermediary authorised and regulated by the Financial Conduct Authority (FCA)
Private investor
This area of the website is intended for retail clients who are UK tax residents. Please note we are unable to give financial advice.
The products offered on this website carry a degree of risk. The value of investments will fluctuate, which will cause fund prices to fall as well as rise and you may not get back your original investment. Specific risks are highlighted on the respective investment pages in this website. Should you be in any doubt as to the risks involved please speak to a financial adviser.
By clicking on the button below you confirm that you are a retail client and have read and agree to the Terms & Conditions