Why Trump Won and Why So Few Expected It

I had my best trading day in my life on Tuesday night in the prediction markets. I have been buying Trump in the the Iowa Electronic Market since August, and sold out at a little over 4 times profit on Tuesday night, before buying Hillary at firesale prices, as sellers dumped without realizing Clinton was on pace to win the popular vote. The IEM Winner Take All contract pays out on the popular vote. It looks like I will make about 10 times profit on those Hillary trades. Overall, I made somewhere around 17 times profit on my capital at risk. I also made about 4x profit on a smaller bet on Republicans retaining control of Congress.

I made the Trump bets because I felt the market was highly distorted by bad information which does not reflect changes in mood and society. My working hypothesis (Socionomics has been very helpful in providing a predictive framework) is social mood has been declining since 2000. This puts the advantage into the hands of outsiders and they continually gain strength as mood sinks. I do not believe social mood has bottomed yet. Overlayed is the establishment's attempt to hold power as technology forces a institutional change. The Internet is tearing down media. Anyone has as much potential reach as major media outlets such as the NYTimes. What the industrial revolution did to the wealth and lifestyle gap between rich and poor, the Internet has done for those rich and poor in broadcast power. You don't need to buy a TV station or a newspaper to influence society. A Twitter account may be enough.

In response to the loss of signal power over the past 10 to 15 years, the establishment decided to ramp up censorship and taboos, avoiding discussing anything that could threaten the establishment's control. The 2016 election should make clear the media establishment completely failed. (Had Hillary won, I have no doubt the censorship and taboos would have ramped up considerably.) Not only is control being threatened as rival voices gain currency, but the mainstream is hobbling itself by blocking these voices, sending itself into battle without knowledge its enemy. If you have read Sun Tzu you understand that not knowing what your enemy is a major disadvantage.

Trump's path to victory was almost a slam dunk if you understood demographics, social mood and paid attention to what voters were actually saying by supporting candidates such as Ron Paul and Bernie Sanders. Going a little further back, the Tea Party and Occupy Wall Street had far more overlap than most people in the mainstream were willing to discuss. Betting on Trump was a slam dunk given the odds in the market, although even I was made cautious by the overwhelming mainstream consensus.

Trump's victory in 2016 was actually outlined in 2000 by Steve Sailer: GOP Future Depends on Winning Larger Share of the White Vote.
So where could Bush have picked up an additional 3 percent of the white vote? The most obvious source: white union families. The 26% of the electorate with a union member in their households voted 59% to 37% for Gore. For the time being, most union families are still white. So if Bush could have won enough white labor families to raise his total labor vote from 37% to about 46%, that would have done the trick of lifting his share of the white vote from 54% to 57%.

What could persuade more white union families to vote Republican when the current AFL-CIO leadership is so leftist? Here`s a suggestion.

The labor bosses are selling out their old time members` interests in order to try to pad their membership with immigrants, legal and illegal. That`s why the AFL-CIO supremos recently called for another amnesty for illegal immigrants. Immigration should be the perfect issue for the GOP to use to split the rank and file from their Democratic bosses.

Since union efforts cost Bush Michigan, Pennsylvania, and Wisconsin (at a minimum), you`d think that the GOP would be hot to win back the Reagan Democrats.

Don`t count on it, though. It`s just so much more fashionable to continue to chase futilely after Hispanics.

In summary: the GOP could win more elections by raising its fraction of the white vote minimally than by somehow grabbing vastly higher fractions of the minority vote.
Even on Fox News last night at about 8 PM, as early results were coming in, the pundits were looking at Trump underperforming Romney in some areas and saying the GOP must increase it's share of the Hispanic vote. Instead, Trump ran on immigration and trade and won the exact voters Sailer predicted would deliver victory to the GOP. Yet Steve Sailer does not get invited on major media shows to discuss the election, and rarely gets mentioned at all because the mainstream doesn't even want to engage him in debate.

For a less political view, this is a good article describing some of the larger technological changes underway: Democracy's Destabilizer: TMI
We are in the very early days of what he calls the Fifth Wave. Institutions that developed in the age of industrialized, top-down mass media are losing legitimacy while new arrangements have yet to evolve. The challenge is to manage the hazardous transition to a new stage without falling into nihilistic chaos and destruction.

Neither celebrating nor denouncing the collapse of authority, Gurri seeks to understand its implications. He offers a disturbingly convincing model uniting such disparate phenomena as the Arab Spring, the 2011 protests in Spain and Israel, the Tea Party and Occupy Wall Street, and, although he doesn’t discuss them, Donald Trump, Bernie Sanders, Black Lives Matter and Islamic State.
Also: Blame Rich, Overeducated Elites as Our Society Frays

In sum, the prediction markets and polls were totally wrong because most people had no idea that what Trump did was not only possible, it was actually highly likely to succeed. I have been expecting a shift at some point, arguing the GOP should have nominated Ron Paul in 2008 because even if he lost, the GOP would win in 2012 and thereafter by realigning the party with social mood and popular issues that were not being represented by either party (immigration, anti-Wall Street, anti-war and protectionist sentiment).

In this 2014 post, I ended it by saying Trump could have an opening if no one took up the immigration issue: Immigration Issue Set to Explode in America; Prepare for Political Volatility

Also: Nigel Farage Was Right (note he was called a bigoted menance back in 2014, went on to win Brexit, a predicted a Trump win)

As for implications vis a vis China: The Logic of Strategy: Yuan Devaluation and the Road to Trade War

Trump may get along far better with China than I expected in that post, but we'll have to see how China policy shakes out. Those favoring an economic containment strategy are very much in tune with Trump's thinking on trade, so there's at least the potential for restrictive trade policies.

The Future

The establishment could have forestalled this collapse by examining its policies and assumptions and making adjustments, but I believe the total failure of pollsters reflects a larger problem: the establishment believes its own lies because it repeats them to itself over and over. There is no conversation taking place in mass media. Much of the real debate is online and in the shadows. If we take the technological change to its conclusion, eventually the dissident right will build its own echo chamber and be as out of touch as the establishment is today.

As for making money, profits will not be limited to the prediction markets. The entire society is riddled with bad information. Great fortunes will be lost and made in the coming years as reality intrudes on false narratives. Looking to the near future, in Europe there is the Italian referendum next month, and German and French elections in 2017. We may be back to euro troubles very soon, which will set off the next leg of the dollar rally and force the Chinese to devalue the yuan......

1 comment:

  1. obama was also an outsider, so clinton was beaten twice by outsiders