Every person I’ve spoken with in Britain says Trump will win. “Social stigma disappears in the booth, you have no idea whats coming.”
— Downtown Josh Brown (@ReformedBroker) October 5, 2016
Well, it happened. And then this morning the sun rose anyway.
For some, the results of last night’s election are “a major shock.” For others, it seems like “the end of the world!”
I hope that the words you’re about to read here can offer you some comfort if you’re unhappy with the result.
The first thing I want to say is that the immediate reaction to Donald Trump’s win in the US stock market was ludicrous. By midnight, Dow Jones futures were down 800 points while S&P 500 and Nasdaq 100 futures were “limit down.” This sounds scarier than it really is. As of this writing, Dow futures are only off 280 points and European stocks have gained back most of their earlier losses.
The kneejerk reaction was not based upon a careful consideration of Trump’s coming economic policies (who the hell knows what those will be?) No, it merely represents a surprise to the consensus and the consensus does not initially tolerate surprise well. Throw in some exacerbation from algos and machine-trading and you get what looks on the surface like a flash crash. It’s not.
Markets could be in for volatility for awhile, even if they come back later today. A crash, however, would be statistically unlikely so it’s weird to see so many expecting one. I think that’s a case of people interjecting their personal feelings and fears, which is something that’s practically unavoidable when forecasting. Even Nate Silver plays with his own models.
Oh, and let’s talk about models for a moment. Throw them in the garbage where they belong. The biggest epistemological contribution of this election will be the confirmation that “Nobody knows anything,” to quote screenwriting legend William Goldman.
Goldman wrote Butch Cassidy and The Princess Bride and a lot of your other favorite films. Here’s the rest of that quote:
“Nobody knows anything…… Not one person in the entire motion picture field knows for a certainty what’s going to work. Every time out it’s a guess and, if you’re lucky, an educated one.”
It’s the same with markets and the same with politics. Just because software has enabled us to do more in-depth analysis and statistical modeling, that doesn’t mean it will produce useful conclusions. People can’t be accurately modeled. And it’s people who work and vote and invest and trade and make deals and stick things into themselves that require a trip to the emergency room.
We can only explain people’s behavior after the fact. “This is why such and such just happened.” Gee thanks, that’s helpful. Expect a lot of post-election rationalizations for weeks and weeks to come in the media.
And speaking of the media…has journalism ever seemed so impotent? Thousands of reporters and opinion writers generating millions of pieces of content. And it didn’t matter at all. Changed nothing. They threw everything they had at Trump for a year and a half and, in the end, people just went and did what their gut told them to.
I’m very sorry to say this to my friends and colleagues in the media but here’s the truth: the echo chamber of Twitter is not at all representative of what goes on in the real world. Mostly, it’s just journalists, professional “thought leaders”, public intellectuals and celebrities stroking each other in a 21st century version of the Parisienne salon. “Read my take on this and then I’ll read yours!”
The voters don’t read. They watch an hour of opinion each night on the cable news channels or on the daytime network talk shows. They make up their minds quickly and once they’ve announced their views on Facebook, they become cemented into them. New information that runs contrary to what they’ve already publicly said is either ignored or disparaged as though it’s just lies and propaganda from “the other team.”
Social media has made it harder than ever for people to consider new information and change their minds. It feels like disloyalty to ourselves to publicly disavow something we’ve already argued for. There is now a searchable record of all of our real-time thoughts and inclinations. Trump’s voters made up their minds a long time ago that they wanted to blow up the system and nothing investigative journalists or op-ed writers have had to say since then has made a dent.
Let’s talk about winners and losers.
The big losers here are the pollsters, professional forecasters and Big Data in general. It’s scientism, not science. Astrology, not astronomy.
I think the media is a big loser here too. Hillary Clinton had just about every single endorsement from newspapers and magazines across the country – as well as a majority of mainstream TV personalities – on her side, even if reluctantly. And it meant nothing at all.
Obviously the Democrats are major losers. The “dysfunctional” GOP that had its obituary written every day for a year has just taken the House, Senate and White House. The left gets to be the opposition party now, for the first time in nearly a decade. Let’s see if they’re as obstructionist as the Republicans were all this time. Let’s see if they’re any better at compromise and comity, as Howard Marks suggests is now necessary.
Social Justice Warriors and political correctness in general – major losers. We’ve had enough, as a society, of a small minority of people instructing everyone else in how they’re allowed to talk and what thoughts or expressions are acceptable. Of people getting fired from their jobs or harassed online unto the point of deleting their accounts, just for voicing their opinions. The pendulum swung too far and now it’ll swing back a bit.
One other thing we can expect: The deficit is going to get blown out and debt levels overall will explode. Big government spending on fiscal stimulus will be a change in tack from what developed economies have attempted to do in the post-crisis period. Will it work? Whatever you do, don’t ask the experts. They’ve gotten it mostly wrong so far.
Trump has promised everything to everyone: Massive tax cuts, yuge infrastructure build-outs, a monumental upgrade to the military, a wall spanning the southern border of the United States. We’re talking trillions if it all gets put in motion. Actual Republicans will go crimson as the bills come due. This is potentially helpful for gold prices and stock prices initially. It’s probably not great for bonds or the dollar. But, as with all things Trump, separating the hyperbolic claims from reality will take time.
Let me close by saying that I believe we’re “off the lows” at this point. Not in terms of the stock market rebounding but just in general. I think the discourse will now improve somewhat with the election behind us. I think the racism and xenophobia and misogyny will cool off. The September and October period was one of the ugliest I can remember in my 39 years. That was “the lows” and I think we’re going to see improvement from there.
I didn’t vote for Obama in 2012 but I said right here on this blog that he was now our president, like it or not. I love this country even if I didn’t agree with who it elected. I viewed it as my responsibility to support his efforts to run it.
I’ll say the same thing now about Donald Trump. I don’t like him personally and I disagree with a lot of what he stands for. The racism of some of his most vocal supporters sickens me and the Russia stuff frightens me, but apparently a majority of the nation isn’t quite as turned off by it all.
Donald Trump is now our president, like it or not. I hope he’s up to the challenge.