Monday, September 14, 2015

This Paul Hodges post makes no sense to me

This post isn't about chemistry, or chemists. But it is about political/economic predictions (oh, goody!). You don't have to click on the link - I won't be offended. My thoughts are below the jump.

Longtime readers of this blog know that I used to keep track of Paul Hodges' economic predictions, back in the day. (Hodges works as a consultant for large chemical companies; he tends towards the macroeconomic predictions about the commodities chemical markets, among other things.) I still read them, but I have been a little more skeptical of them over the years. 

His latest column is fascinating in a "I'm pretty sure he's wrong" way. He leads off quite a bunch of political news and predictions: 
My local MP, Jeremy Corbyn, won the UK Labour Party leadership election on Saturday with a 60% majority.  An anti-NATO socialist, he has represented the constituency for 32 years, and has never held even a junior ministerial post.  Now, he could possibly become the UK’s next Prime Minister. 
His path to power depends on two developments taking place, neither of which are impossible to imagine.  First, he needs to win back the 40 seats that Labour lost to the Scottish Nationalists in May. And then he has to hope the ruling Conservative Party tears itself apart during the up-coming Europe Referendum... 
In the USA, the establishment candidacies of Hillary Clinton for the Democrats and Jeb Bush for the Republicans are being upstaged by the two populist candidates – Bernie Sanders and Donald Trump:
  • Clinton’s campaign has stumbled badly over the email server controversy
  • Sanders is polling only 8% behind Clinton, and leading her in Iowa and New Hampshire primary polls
  • Bush’s campaign has fared even worse, as he is no longer seen as the front-runner
  • Donald Trump has taken an early lead, with another outsider, Ben Carson polling strongly.
Meanwhile in France, polls show Marine le Pen of the National Front party with an early lead ahead of 2017′s Presidential election.  Europe’s failure to act in an united way over the Syrian refugee crisis is adding to her appeal.
Readers, I don't know a darn thing about UK or French politics, but I am quite sure that neither Trump nor Carson will become the GOP nominee. I have no idea who will win the GOP nomination, but the trend of presidents being former governors, senators, vice presidents and the odd 5-star general isn't going to be broken anytime soon, in my humble opinion.

Hodges' predictions are relevant to companies, he says, because of the likelihood of political change leading to political risk:
...The economic success of the BabyBoomer-led SuperCycle meant that politics as such took a back seat.  People no longer needed to argue over “who got what” as there seemed to be plenty for everyone.  But today, those happy days are receding into history – hence the growing arguments over inequality and relative income levels. 
Companies and investors have had little experience of how such debates can impact them in recent decades.  They now need to move quickly up the learning curve.  Political risk is becoming a major issue, as it was before the 1990s.
Of course a prediction skeptic like me would say this, but I have a very, very, very difficult time imagining that populist movements could have significant traction in the U.S. Congress in passing legislation that would seriously affect companies and investors.

UPDATE: Here's another interesting one from Paul Hodges from a couple days ago:
Oil has a higher energy value than gas, and has historically traded at around 10 times natural gas prices.  So $30/barrel oil would completely erode the shale gas advantage, assuming gas prices remain around $3/MMBtu. 
I personally would love $30/barrel oil (I figure that would drop gas well into the $2.50/gallon range or below), but I don't see that happening either. Well, I'll set a 6 month reminder on my calendar, and we'll see who's right. 


  1. 1) Wouldn't it depend on what populist movements are operating? Liberal popular movements might be more of a problem for the chemical industry than conservative ones.
    2) The implication seems to be that political apparatuses that don't have popular support are likely to be good for the chemical industry, which sounds like an implicit argument for fascism, or at least political operations that don't care what their citizens think. That doesn't sound so good to me.
    3) Has he seen our system? Novel candidates seem to do well early in part because their weaknesses aren't known, while front-runners have had a long time for their histories and failures to be exposed to public scrutiny, and because they arouse party feelings, which I imagine the parties hope will get more people to vote for their candidates. I'm not certain why this is different than usual.

    1. On (1), the risks certainly aren't symmetric, but right wing populism also can be very bad for the chemical industry. Currently, the right wing populist mood is very anti-immigrant and anti-free trade. (Broadly, anything not "American" is scary.) If those sentiments were to actually become policy, it would not be good for the chemical industry, which relies on skilled foreign labor and trade with other countries.

  2. Hodges is the classic hedgehog - he has one idea (Demographics!) and just repeats it over and over in various formats. He seems oblivious to the fact that everyone else that matters already knows this.

    He's also a very reliable broken clock who constantly claims that oil prices will fall, and then toots his own horn every time they do. It's rather amusing, as long as you aren't making any bets on his "predictions".

  3. In a normal year, I would agree with you. But this is not a normal year. I think there is a decent chance Trump is still being underestimated and goes to the nomination. First he was supposed to have a ceiling in the 20s, then the 30s, and now he is approaching 40. It's not just because GOP voters are angry at their own party but also because the GOP donor class made a major strategic mistake out of the gate by trying to ram Bush down the voters throats and clearing the primary. They failed spectacularly, but in doing so created a walking zombie with a lot of money. The other viable establishment candidates like Rubio, Walker, and Kasich won't be able to gain traction because Bushboy has all the dough. But I don't think GOP voters are going to go for another Bush no matter how much money he spends. Hence the vacuum that Trump is now dominating. Even if Trump and\or Carson do flame out, I suspect the establishment candidates still won't benefit, because most of their support will go to Ted Cruz in that case.

    1. The reason for Trumps popularity is simple.....Americans, for the most part, hate cheaters (people who cross the border illegally). Furthermore, having to compete with cheaters for you job and seeing your wages stagnate because of it will create voter rage. I suspect if Bush was not fluent in spanish and had not married a Metizo lady he would be popular outside of FL and would get the republican nomination.

    2. The reason for Trumps popularity is in fact simpler than that. A lot of people are racist and they are tired of hearing political correctness. Trump tells them what they want to hear.

    3. I agree, NMH. Whenever I return to my very rural, conservative hometown, the two issues they gripe about are welfare cheats (whom they know personally!) and illegal immigration. I don't think my fellow Democrats grasp how badly these two issues are hurting them, especially when folks like Anonymous come along and double-down by blanket accusing them of being racist.

    4. Although I am in 100% agreement on Trump's immigration policy, I'm doubtful that I could vote for him. The fact he says little of anything that's substantive (like any standard ACS presidential candidate) makes me question his intelligence. And he is extremely thined-skined.

  4. The real question is whether Trump can sustain his momentum all the way into November 2016; so much can change between now and then. At some point you would assume that people would actually want concrete policy prescriptions from him and not just refreshingly honest sounding populist rhetoric.