Similarity Of Political Polls and Markets

As I skimmed through this National Post article about the resurgent popularity of French President Sarkozy, I was reminded of the more than passing similarity between politics and markets. At first blush this may seem an odd comparison but not, I think, on closer examination.

• Both politics and markets probes human sentiment, and are therefore both subject to the same attributes of human psychology, especially that of large groups. In particular, they quantify human sentiment.
• Opinions are often strongly influenced by what others are saying or doing. If you think gold is in a bubble, you are likely beginning to doubt yourself by all the people selling jewelry for its melt value and the "gold is going to the moon" headlines in the edgy investment media outlets. The same is true if you keep hearing how good (or bad) a job a politician is doing and you had voted against (or for) them last election.
• When the mob gets enough momentum you get a transitory bubble in the market, and in politics you get Trudeau-mania or Obama-mania. Of course this also works in the other direction to push the market into a tailspin, such as in late 2008, or to oust a political leader, as Gordon Campbell of B.C. recently discovered.
• Opinions are unstable between elections just as are views on companies and commodities leading up to an investments decision. Opinion polls and pontificating on markets are easy since people have no skin in the game.
• Opinions can be entirely different once an election occurs, just as when a buy or sell decision is executed. People then become invested in their choice for a time, often rationalizing their choice to themselves and others, even when it goes wrong. The shouts of denial can get quite loud when the elected do what the voter does not agree with, just as when an investment goes sour. Just look to any pro-Obama or Sarkozy voter, or any gold short.

The particular reason why the new about Sarkozy's popularity struck me is that the polls remind of a dead-cat bounce in the market. If you are unfamiliar with that pattern, it is when a terminally-ill security crashes to the ground and then has a feeble bounce off the pavement before staying down for good. This uptick in Sarkozy's numbers could be just that.

Of course this isn't certain until the opinion cycle completes and we know for sure whether the decline resumes or if his reputation is on the mend. This, too, is true in the markets. If it were possible to bet on his future popularity it would be just like trading on pure technical analysis, rather than fundamentals, to those like me who know little of French politics. Both are bets on the behaviours of masses of other people.