Elon vs. the Haters
A recent survey asked young voters about the influence of hypothetical political endorsements by different celebrities. Here’s a sampling of what they found:1
|
Celebrity |
More likely to support the candidate |
Less likely to support the candidate |
Net |
| Zendaya | 24% | 7% | +17 |
| Sydney Sweeney | 9% | 5% | +4 |
| Drake | 8% | 8% | 0 |
| Elon Musk | 12% | 26% | -14 |
Of all the celebrities they studied, Elon Musk had the biggest power to alienate voters, with 26% saying that his endorsement would hurt. Bloomberg called him the “Typhoid Mary of Celebrity Endorsers.”2 Whatever you think of Elon, we can all agree there are many people who don’t like him.
In Frazzini and Lamont (2008), we used the term “anti-skill” to describe the ability of retail investors to destroy their own wealth through their investment decisions. Similarly, the survey shows that Elon has “anti-influence” when it comes to endorsing political candidates.
There’s a tiny shred of evidence that supports the idea that Elon’s endorsement would actually hurt a candidate. In March 2024, Elon emailed all Tesla employees urging them to vote for a specific candidate in the election for Texas Attorney General. Elon’s candidate lost.3
Despite this seeming failure to influence elections, Elon certainly has the power to influence market prices. The indispensable Matt Levine has dubbed this “The Elon Markets Hypothesis,” defined as “the way finance works now is that things are valuable not based on their cash flows but on their proximity to Elon Musk.”4 Elon has repeatedly demonstrated his power to increase the price of any asset he mentions, as discussed by Levine in 2021:
- GameStop5
- Bitcoin
- Dogecoin
- Signal Advance (a case of mistaken identity)
So, why is there a difference between Elon’s political influence and his financial influence? How can we reconcile the Elon Markets Hypothesis with the survey results?
The reason is simple, and it all goes back to Miller (1977) which I've previously discussed. When shorting is impossible, optimists set the price, and pessimists have no voice.
Let us suppose the world consists of three types of people: Musketeers who love Musk, Haters who hate Musk, and Neutrals who don’t care. Based on the table, the world consists of 12% Musketeers, 26% Haters, and 62% Neutrals.
Suppose Elon endorses political candidate A. In a political election, voters can vote for candidate A, but they can also vote against A and for B. So in a political election, the Haters get a vote, and A will lose (26% > 12%).
Now let’s go to an asset market with short-sale constraints. Say, shorting is illegal. If Elon endorses asset A, there is nothing that haters can do other than refrain from buying A, or selling A in the unlikely event they already own it. The Musketeers will run wild, driving up the price of A.
Miller (1977) described all of this:
… security markets will produce investment decisions that differ from those produced by typical bureaucratic decisionmaking procedures (either governmental or corporate). Investment decisions made through security markets will reflect the opinions of the optimists, while those made bureaucratically will reflect the average evaluation. The market will select all investment projects for which investors are willing to take enough shares to finance the project. An investment project may be built even though the average investor is quite negative on it. In contrast, if decisions are made by having projects either accepted or permanently rejected by a single bureaucrat or a committee utilizing majority voting, the types of projects approved will reflect average opinion.
So to summarize the argument of Miller (1977):
- In an election, haters gonna vote vote vote vote vote.
- In a market where short selling is allowed, haters gonna short short short short short.
- In a market with no short selling, haters have no effect.
Okay, that’s my basic message. Everything is Miller (1977). Always.
Got it? Time for a pop quiz.
Question 1
Based on the survey results, if you’re trying to boost the price of an asset, which two celebrity endorsements do you want? Assume that short selling is illegal.
Answer: You want Zendaya and Elon. They have the greatest number of supporters (Zendayniacs and Musketeers). We don’t care about the net number in a market where short selling is illegal. By the way, Elon has often argued that short selling should indeed be illegal; I am unfamiliar with Zendaya’s views on securities regulation.
Question 2
Based on the survey results, if you’re trying to get candidate A elected over candidate B, which two celebrity endorsements do you want?
Answer: Once again, you want Zendaya and Elon. Specifically, get Zendaya to endorse A and get Elon to endorse B. Landslide victory for A.
References
Endnotes
- https://blueprint2024.com/analysis/celebrity-endorsers-youth-poll/
- “Elon, Inc: A Typhoid Mary of Celebrity Endorsers,” Bloomberg, May 28, 2024.
- "Elon Musk’s pick for district attorney of Texas’ Travis County lost on Tuesday," CNBC, March 6, 2024.
- "The Elon Markets Hypothesis," Bloomberg, February 10, 2021.
- References to this and other companies in this discussion should not be interpreted as recommendations to buy or sell specific securities.
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