STUMP » Articles » Trump Tweets and Public Pensions: Is CalSTRS really a long-term investor? » 31 July 2019, 16:30

Where Stu & MP spout off about everything.

Trump Tweets and Public Pensions: Is CalSTRS really a long-term investor?  


31 July 2019, 16:30

The reason for this post is this headline:

CalSTRS CIO Says Trump Tweets are a ‘Key Market Risk’ to Monitor


Let me explain my reaction — which is essentially in the headline above.

Trying to move on a Trump tweet is something a day trader should do.

If one is truly a long-term investor, then the burp of a Trump tweet ain’t nothing. The man will be gone for sure by 2025. (Don’t give me that “emperor for life” cant. I’ve heard that talk for both GWB (from the left) and Obama (from the right) And if you do want to argue that, he’ll be dead before most Calstrs participants, as most are well younger than he is, and female, to boot.)

I don’t take this particular headline seriously, and I see it as more of an excuse for tasking someone to read Trump tweets all day. Even I don’t pay much attention to Trump tweets, except with respect to tax (plenty on this) or pension (not much on that). And it’s only for color.

Now, yes, Trump administration policy is important, but if you take policy cues from tweets, you’re an idiot. You need to look at what Trump’s admin actually does. I have noticed what does and does not get done. Just because Trump jabbers about something does not mean anything will happen.

In addition, if you ask me what a long-term investor is, I am thinking in terms of decades. That’s the excuse being given for all the various climate-related divestment/ESG stuff is, anyway. (Yes, I’ve seen people trying to up the hysteria that we must act… by election day 2020. Let me say: I’m skeptical about that politically-convenient timeline.)


I have not been blogging as much lately. I decided to look at how many posts I have in draft mode — it’s over 100, but to be fair, some were from prior years with ideas that just died. Just from 2019, I have 25 posts in draft.

But I have a long-lived pain problem, which started in the summer of 2010. This is a representative sample of my problem. I have been through two waves of trying to put this thing to rest, but life happened (and my first neurologist moved back to Switzerland). This summer I said screw it, I’m trying again. More details are here.

So, blogging is going to be erratic indefinitely. Except for Taxing Tuesday. That’s pretty easy. I just do my news searches, and I also yank links my friends share.


Okay, let’s see the meat of the article, which has the subhed: Despite the present ‘Goldilocks’ economy, Christopher Ailman is keeping a sharp eye on the president’s Twitter page.

Ugh, that’s still dumb.

During a recent board meeting in July, Christopher Ailman, the chief investment officer of the California State Teachers’ Retirement System (CalSTRS), said President Donald Trump’s behavior on Twitter was one of his top concerns as governor of the $237 billion portfolio.

“The number one thing on my mind was trade fight and trade wars, and that obviously links to the president’s tweets,” Ailman said. “Who knows that would come together.”

Global markets endured significant turbulence because of concerns about trade talks with China breaking down, Ailman said. “There’s more volatility in the trade talks than I think the US is used to, and that’s in part because we have a very unique White House than we’ve had before. It’s more real estate kind of negotiation, which is pretty rough-and-tumble.”

Yes, it is. So there may be effects on short-term tactics in investment, but shouldn’t have huge long-term effects.

A study carried out by the University of Nottingham concluded that “the effect of a positive and negative tweet on abnormal returns is statistically and economically significant as the effect on returns usually follows the sentiment of the tweet (a positive tweet leads to positive abnormal returns).” The study also found that a positive tweet by Trump has more of an effect on the market than a negative tweet.

The effects are generally temporary, the study found, and last approximately two to three days on average. The study also suggests that the president “does indeed use Twitter as a strategic tool to influence the stock price and hence the actions of target companies.”

Two to three days. Really? Again, this is day trader shit.

I found the Nottingham study (not linked in original article), as well as another study from Skidmore. Let’s compare results.


The Nottingham study is an undergraduate dissertation by Krishan Rayarel: The Impact of Donald Trump’s Tweets on Financial Markets


This study tests the efficient market hypothesis (EMH) by analysing the effect of Donald Trump’s company-specific tweets on financial markets for the period between 8 November, 2016 (the U.S. presidential election date) to 24 January, 2018 (a year after inauguration). Using a sample of 24 company-specific tweets, the results show that a tweet by Trump leads to statistically significant abnormal returns that last for 2 to 3 trading days. This is inconsistent with the semi-strong form of EMH. This is the first paper to test the attention-based investing hypothesis by Barber and Odean (2005) using Trump’s tweets. Attention-based investing is a possible reason for market inefficiency as Trump’s tweets lead to an abnormal trade volume of 43.54% on the day of the tweet and an increase in Google search activity on the week of the tweet.

I’m not going to rag on it being undergraduate research — heck, my only published academic papers comes from undergraduate research (under very senior professors… and basically, I just did the code, ran it, and summarized results.)

But seriously? 24 Tweets?!


No wonder they didn’t link this study. I’m embarrassed for all involved, even the undergrad. I assume the undergrad got the degree, so we’ll move on to a different study.


Stock Market Reactions to Presidential Statements: Evidence from Company-Specific Tweets

The three authors on this are professors, two professors of economics from Skidmore and a professor of finance from West Virginia University. Okay. Let’s see their abstract.


When the President of the United States tweets, do investors respond? We analyze the impact of tweets from President Trump’s official Twitter accounts from November 9, 2016 to July 31, 2017 that include the name of a publicly traded company. We find that these tweets move company stock prices and increase trading volume, volatility and institutional investor attention, with a stronger impact before the presidential inauguration. The initial impact of the presidential tweets on stock prices appears to dissipate over the next few trading days. Overall, the results show that investors pay attention to presidential company-specific statements even when such statements have no lasting effect on shareholder value.

I think we’re done here.

I don’t care that the undergrad put something in their paper about Trump wanting to affect markets or companies. It doesn’t really matter what Trump wants or thinks he can effect. Either he really does… or he doesn’t.

Looks like he pretty much doesn’t, when it comes to specific companies. A 2-or-3-day blip is nothing to even a medium-term investor.

That people trade on what Trump says just shows the usual idiotic day-trader activity.

I should hope Calstrs isn’t a day-trader. Tactically, I can see them holding off on buying or selling in a specific name due to price volatility as a result of a tweet (or something else).

Strategically — just wait the 2 or 3 days and do your trades. This isn’t a big thing.


Okay, let’s see what else is in this piece:

The other key risks Ailman is monitoring are Iranian aggression, a European recession induced by Germany and France, unrest in Hong Kong and Taiwan, consumer sentiment, program trading volatility, and Brexit.

Those sound substantive to me, and yes, some are tactical (program trading volatility) and others indicate longer-term strategy.

Ailman also noted he’s braced for unexpected circumstances that could shake local and global markets. The threats were spread across summer heat waves, cyberattacks, earthquakes, lone wolf terrorism, the Middle East conflict, Russian aggression, and pandemics stemming from swine or bird flu.

So, he’s talking primarily about tactical, not strategic, issues in terms of ERM.

Oh, btw, this guy has bitched about Trump before. From a year ago: CalSTRS CIO Warns Trump’s China Policies Could Disrupt Market

Oh wait, he bitched about the tweets last year, too:

Ailman, speaking at the $224 billion pension system’s investment committee meeting on July 20, said the concern is that if China starts to view President Trump’s tweets and policies not as a “trade battle” but a “trade war.”

I guess. I see news going back and forth re: China and trade, and so who knows.

But I wouldn’t necessarily pin it all on Trump at this point:

None of the leading Democratic presidential contenders said they would immediately drop President Trump’s tariffs on China if elected president, despite criticizing his moves against Beijing as reckless.

Driving the news: Axios asked each campaign whether they would get rid of the tariffs on day 1, and none gave a clear answer. The campaigns said they would either leave the existing tariffs in place or conduct a review of the tariff policy upon entering office.

Hmmm. Interesting.

Can we agree if there is a trade war on, and that Democrats wouldn’t end it… perhaps this is not about tweets?

And yes, that would be of concern for longer-term investment… the issue of trade balance in the world, and that some do not like the current deals.

But that doesn’t grab headlines, does it? Not like bitching about Trump’s tweets…though everybody complains about the tweets.

In any case, now this is on my radar. If Ailman complains about the tweets again next year… I will point and mock him again, next year.

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