I'm hearing a lot about how no one saw Trump's win coming so I figured I'd repost my article from 2 months ago in which I explained how and why I predicted a Trump win. But I didn't predict a win two months ago, I predicted it 6 months ago when I bought Trump shares on PredictIt.com.

UPDATE: Based on some of the comments I would like to admit an error I made in the choice of my words. I should not have said "I predicted a Trump win." I suppose I can rationalize this error as sacrificing accuracy for expediency. But the truth is probably that I wasn't really thinking about it. It is faulty to pretend I "predicted a Trump win." In my head I was being hyperbolic, obviously no one can predict the future, but I do understand how this could sound huckster-ish and disingenuous and I would rather be viewed as a bad forecaster than as those things. What I probably should have said was something along the lines of, "I believed that the methodologies being used by analysts which then influenced markets like PredictIt had glaring flaws which made the market price of Trump shares under-priced. I therefore chose to GAMBLE by betting against that faulty analysis." It is 100% true that the fact that Trump won was lucky for me. That being said, gambling is about placing yourself in scenarios where luck will pay off disproportionately to the risk you are assuming. But that's a bit long winded and boring, so I hope you forgive me for being overly simplistic with my phraseology. Writing these articles is time consuming and there's only so much time I can spend making sure every sentence is perfectly correct. I have left the original text so you can evaluate for yourself and judge me accordingly. Thank you to everyone who has given me positive feedback on this article, but also thank you to the people like @kyriacos who called me out on my bullshit.

Unorthodox Information Theory

The strategy I used (outlined below) involves using unorthodox information sources to illuminate the polling data as opposed to assuming that the polling data was all you needed to look at. I think the evolution of Nate Silver and fivethirtyeight is a perfect example of what went wrong. When Nate Silver burst on the scene in 2008 I recognized that he was doing something with the data no one else was doing: making it better. At the time the mainstream narrative was that polling data was too erratic to be especially useful, hence the justification for the countless talking heads who were "political experts" despite the absence of any evidence to indicate that they had any forecasting skills whatsoever. Then the election occurred and surprise-surprise, better data performed ... better. But something funny happened in the following years; Nate Silver started engaging in punditry which actually made his information worse, a fact that was obviously missed by the pundits who are about as good at statistical analysis as they are at coming up with original thoughts.

The Religion of Measurementism

What a difference 8 years makes. Over the course of 8 years the mainstream went from ignoring Nate Silver to believing that his analysis, and the analysis of other pollsters who no doubt adopted his strategy, was all that mattered. On the contrary, once everyone saw Silver's performance the advantage of looking at it disappeared! Looking at fivethirtyeight can help you if everyone else is looking at worse data, but if everyone is looking at that data, then no one has access to any special information and so one must look elsewhere for additional information.

This, however, is not a strategy that is being fostered in Universities and business schools. There they tell you that there is a "way" to do things, written down in a text book by an academic, and if you follow their method (which they have no proof works) you will succeed in life. All you have to do is find the right measurement and all will be well with the world. They honestly do not understand that the world is more complicated than that, that understanding it requires allowing your thought processes to evolve and adapt, to think critically about popular narratives (not unpopular ones), be skeptical, take creative risks and rigorously test your theories.

Nassim Taleb calls them the "Intellectual-Yet-Idiot":

Typically, the IYI get the first order logic right, but not second-order (or higher) effects making him totally incompetent in complex domains. In the comfort of his suburban home with 2-car garage, he advocated the “removal” of Gadhafi because he was “a dictator”, not realizing that removals have consequences (recall that he has no skin in the game and doesn’t pay for results).
The IYI has been wrong, historically, on Stalinism, Maoism, GMOs, Iraq, Libya, Syria, lobotomies, urban planning, low carbohydrate diets, gym machines, behaviorism, transfats, freudianism, portfolio theory, linear regression, Gaussianism, Salafism, dynamic stochastic equilibrium modeling, housing projects, selfish gene, Bernie Madoff (pre-blowup) and p-values. But he is convinced that his current position is right.

• https://medium.com/@nntaleb/the-intellectual-yet-idiot-13211e2d0577

Wave Theory, Brexit, Scott Adams

My specific strategy involved using Economic Wave Theory, the information gleaned from the Brexit experience, as well as the obviously insightful information being disseminated by Scott Adams on how Trump's usage of persuasion gave him a strength that was being wholly ignored by his opponents due to their ideological blindness. I also developed a strategy of viewing the candidates as financial assets and looking at their movement in the polls as analogous to the movement of such assets in markets. These are pieces of information that are hard to measure quantitatively, but not difficult for open-minded individuals to perceive instinctively, and so they are ignored by people who prefer to pretend that what they can measure (polls) is all that is measurable.

This appears to be the same impulse present in economists and central bankers who delude themselves into believing that their poorly designed metrics, constantly redesigned to give the "right" answer, somehow represent the totality of the economy and enable them to prevent recessions ... right up to the moment they don't. This widespread absence of innovative thought whether it's in Universities, Government, or Corporations seems to be a kind of epidemic, one that likely characterizes societies which exist during this phase of the economic long wave, but that is a subject for another post.

Posted 2 months ago

I Do Not Endorse Trump

I want to point out first that I do not want Trump to win the presidential election. I also do not want Clinton to win. That's not my point. In fact, it would be much harder to accurately assess the situation were I to possess any particular affiliation. That being said, after seeing the level of vitriol and actual violence leveled at anyone who openly opposes Clinton, and given the absence of any such violence from those supporting Trump, if pressured to take a stance I would endorse Clinton for my personal safety. I live in New York City after all where support of Trump, even if only a byproduct of the lack of support for Clinton, is viewed as a borderline capital offense.

That being said, regardless of what I want, or what I am forced to say out of fear for my own personal safety, I still do not think that the odds will favor Clinton over Trump on the day of the election. Obviously the odds favor Clinton now because the polls favor Clinton now and were people's beliefs and opinions to never change, Clinton would obviously be the favorite. And if anyone would like to make a bet as to whether people's beliefs and opinions tend to change over time I would gladly put money on them changing. For proof of this fact one need only look at their polling numbers over time.

Trump and Obama

Trump has always performed poorly in the polls ... Right up until he didn't. This is not unique to Trump. Another recent politician suffered from the same tendency: Barack Obama, whom I also predicted would win the primary and two presidential elections at a time when conventional wisdom held that Obama would be decimated by Clinton and even if he wasn't, he would be decimated by McCain. The problem with both of these arguments is that they suffer from the same faulty assumption: that whatever people believed at one time would determine what they believed at a later time.

Again I should point out that it didn't have anything to do with my support for him as a candidate. So how did I make the Obama prediction? Well there were obviously the intangibles. Handsome, bright, eloquent, black, charismatic. But really these were all secondary. These are all subjective impressions and the problem with subjective impressions is that they are unique to individuals. If they were objective, everyone would agree and the debate would be over. Your subjective impressions can theoretically be totally unique to you. It is true that if you feel a certain way, odds are that other people feel the same way you do, however, there is no way of knowing just how strongly they feel, just how many of them there are, and whether they are willing to act or speak on those beliefs. This was where trends in the polls became useful.

The Case of Reverend Wright

Parsing correlation from causation is difficult, often impossible, but one of the things that struck me with Obama was how it seemed that by simply speaking more he could raise his polling numbers. This is, of course, how he got into the race in the first place. As an underdog candidate his odds started at zero. It is tautological to say that in order to eventually win he (and his team) had to raise their numbers. But how did they do it? I want to return to this point later, but at the time what I observed was his relatively unique ability to turn perceived negatives into positives. The moment that most stands out in my memory was the Reverand Wright incident. The Reverand made some incendiary statements which most people believed would be the death knell of the Obama candidacy. Many even believed on Election Day that the Wright Incident would make a critical difference in Clinton's favor.

But by this time I had already observed Obama's remarkable ability to use bad situations to his advantage and this instance was no exception. Looked at from one perspective Wright's words resonated with people in a very negative way and so other people believed that this negative association would "stick" to Obama. Wright embodied many people's fears and people responded to that by assuming that these fears would spread to Obama. There is, however, another way to look at it.

Fear Can Be Opportunity Knocking

By bringing people's fears to the forefront Wright provided Obama with an opportunity to address them head on and neutralize them. Wright's statements enabled Obama to address a fear he might not have known was especially important or might not have otherwise had an opening to address. In other words Wright's statements were a blessing, not a curse, at least for Obama at that time. Imagine, for example, Obama had come right out (in the absence of Wright's statements) and said, "I know a lot of people are concerned about my race. They believe that because I am black I might be somehow biased in favor of my people who are, technically, not representative of the majority of the population of the country that I am applying to run. I promise I am not biased." Do you think people would believe him? Or do you think that people might find it odd that he felt compelled to say this? Might this not be interpreted as a case of "me thinks the lady doth protest too much?"

People felt that Obama's tight link to Wright would doom him. What they failed to realize is that this link could be severed extremely easily. Disavowing doesn't always work, and bear in mind that Obama's numbers did suffer slightly from the event, however, when the issue is a tight bond between two people at least this issue can be severed by simply severing the bond. Severing the bond, however, is not what raised Obama's numbers. Disavowal, as has been proven many times, doesn't tend to appease people. It was his ability to leverage this incident to allay people's fears regarding his race in a natural way that would eventually pay dividends.

But it was never my ability to foresee the specific events that would transpire that enabled me to predict his eventual victory. I didn't know the Reverend Wright incident would occur or how Obama would deal with it, I simply knew that Obama (and his team) were equipped with the tools to effectively respond to it and turn it to their advantage. It was my ability to identify the tools and weapons he had at his disposal (which included those intangibles mentioned earlier) that would enable him to maximize his odds of an eventual victory.

Nothing Is Written In Stone

This is an important point. I am not saying that any of this is written in stone. By my estimation, Trump is still a favorite to win the election. That doesn't mean he will. First off, there is the possibility of Black Swan events. Unforeseeable events which will fundamentally alter how we perceive reality. It is impossible to predict how Black Swan events will affect reality and our perception of it, however, it seems to me (though I am no statistician) that if we can not predict who these events will benefit, the odds that they will benefit Trump are 50% and the odds that they will benefit Clinton are 50%. But this is only before the events occur. If, for example, there were 9/11 type Black Swan event this would likely benefit Trump (though it could conceivably benefit Clinton as well given her tenure as Secretary of State). After the event the odds would have to be adjusted to reflect the nature of the event possibly shifting the probability from 50/50 to 60/40.

The Corruption Variable

Second, I am not capable of estimating how much both the Republican and Democratic establishments are willing to influence, or capable of influencing, the election results. Never before have I witnessed so many members of one's own party so vehemently against their own chosen candidate. While the democratic establishment seemed to have been effective at neutralizing Bernie Sanders in the primaries, it would be difficult to say they are capable of influencing the general election to such a degree. However the fact that so many members of the Republican establishment are still opposed to a Trump presidency and are even openly supporting the Democratic candidate certainly increases the odds that together they can push Trump's numbers down enough to lose him the election. That being said, it is not at all clear that these interests can impact the general election to the same degree that they were able to influence the primaries which they directly controlled and Trump's victory demonstrates the limits of the Republican establishment's power. I am currently of the opinion that if Trump can win a sufficient percentage of the popular vote (e.g. Greater than 50%), he will win the Oval Office. Of course that means that if he can't, he won't.

Viewing Candidates as Financial Assets

It's too early to tell whether I'm right or wrong about my prediction, we'll only know the answer to that after election day, but a natural implication of my prediction is that Trump's numbers would improve going into the election, and they will eventually overtake Hillary's numbers. This entire article is actually a byproduct of a conversation I had with a friend back when Clinton's lead over Trump was in the double digits. How smart I would have looked had I the good sense to publish it then! His argument was essentially, "Trump isn't going to win because he's far behind in the polls."

I use PredictIt.com to bet on presidential elections and this type of logic is common on the site. In fact, the whole reason I started using the site was because I recognized that it was a trading platform, but never before had I seen such a concentration of people who weren't thinking like traders! For example, this entire argument is a well known strategy in finance: momentum trading. The trader is betting the an asset's future value is going to be determined by the current trend. If the asset has been going up in the past, it will continue to go up in the future. This can be both a conscious and intelligent strategy or an unconconscious and ignorant strategy. Basically if you don't know you're doing it ... Good luck.

My friend was saying that because Trump's numbers had been going down, they would stay down even though his numbers had plummeted in the past only to subsequently rally. But as traders often say when mocking other traders, "this time it's different." This time Trump has offended too many people (the argument would go). My response to my friend was fairly simple. I called up the realclearpolitics polling average chart for Trump v. Clinton.

I then asked him, "Would you describe Trump's chart as volatile?" He, of course, said, "Yes." After all, Trump had gone up 5 points in just a few days. The fact that they plummeted soon after again in just a few days only proves that he is a volatile asset. That being the case it is highly unreasonable to believe that Trumps numbers would remain stable, because that is the exact opposite of volatility. But when an asset is down-in-the-dumps like that people just have a hard time imagining it doing anything else. People, it turns out, are not terribly imaginative! As can be seen on the chart, Trump's numbers quickly recovered and continued on the same path, a steady positive rate of increase, they had taken before the sharp spike up that in trading get terms might be explained as a "short squeeze" or "panic high."

Crowdism and Elections

This, however, does not explain why Trump will WIN. This only explains why Trump's number do not prove that he can NOT win. It has always fascinated me how every election seems to come right down to the wire. It doesn't seem like there's ever really much of significance that would change people's minds, hence the over-obsession with minutiae like debates during which the candidates compete to see who can answer as few questions as possible. Many posts, many BOOKS, could be devoted to this topic, so I will simply approach it from my personal philosophy of Crowdism and hopefully elaborate on this in the future.

My argument would be that the reason elections always come down to the wire is because it is in the best interest of the Crowd to wait till the absolute last minute to make its determination. This way it maximizes the amount of information it has access to. After all, the world is constantly changing. New information is constantly being discovered whether it's about the candidates, the political process, or simply reality. If the crowd makes its decision too early it risks being wrong when new events transpire between the time of the decision and the election.

At first glance this might be a sensible strategy for individuals as well and one might believe this to be the root cause of this phenomenon. Maybe individual people are waiting till the last minute to make up their minds, that's why elections always come down to the wire. But no, the voting habits of individuals is highly predictable. Odds are any given individual will NOT flip their vote. Obviously some individuals have to, but the majority of people have in group bias and simply vote for which ever candidate belongs to their group whether it's Democrat, Republican, Liberal, or Conservative.

Dilbert And The Election

If this is the case, then the real question one needs to ask is not whether individuals will be convinced, but whether the Crowd will be convinced. There were two key pieces of evidence that led me to believe that the Crowd will eventually favor Trump and they likely both come from very unexpected places. The first source is the creator of Dilbert, Scott Adams, who pointed out that Donald Trump had world class persuasion skills. Not "peruasion" in the sense that he's "a convincing guy," persuasion as in "mass hypnosis" or "hypnosis of the crowd." I immediately made the connection between Trump and Obama. That was the word! Persuasion! Obama had such firm control over his numbers because he was so PERSUASIVE. Little did I know (until I read Adam's blog) that Obama was so persuasive because he had on his team a psychologist named Robert Cialdini who literally wrote the book on persuasion aptly titled, "Persuasion."

A little something you should know about me now is that when I meet new people I make two determinations in the first 10 minutes of meeting them: 1. Are they intelligent, 2. Are they honest? If the answer to both questions is, "Yes," I immediately trust them. I am a deeply skeptical person, so I'm always on the look out for red flags, however after I make this determination I don't waste much time trying to disprove the person, I simply accept their wisdom when it pertains to something outside of my skill set. I am not ALWAYS right, and yet this strategy has still proven remarkably rewarding. Adams was clearly informed about persuasion, he was aware of Cialdini's influence on Obama's campaign, and he was claiming that Trump's persuasion skills were amongst the best in the world. Of course I would keep learning and went on to read some of Cialdini's work (which is all scientifically sound), but this information became an important piece of the puzzle. Before moving on I should point out that Adams now has theorized that Cialdini joined Clinton's team after Sanders dropped out of the race (perhaps because Cialdini was involved in his campaign which did surprisingly well) based on the improvement in her persuasion technique--mainly her decision to abandon rational arguments and pivot to more emotion-based arguments--which is further reflected in the improvement of her polling numbers. It is, however, my opinion that one man's influence is not sufficient to counteract the macro-level trends at play, especially given Trump's own persuasive skills.

Martin Armstrong: Wave Theory and Elections

But what had played an even larger part in my prediction was the work of Martin Armstrong. Armstrong satisfied my two criteria early on (intelligent and trustworthy) despite being highly unusual. Fortunately I believe I have a unique ability to parse eccentricity from stupidity and Armstrong is without question a fantastic economic mind. It was Armstrong's stance that our economy vasillates between Public and Private poles. At certain times it favors the private sector, at other times it favors the public sector. But I would put it different. I would say that at certain times the CROWD favors public solutions and at certain times it favors private solutions. Armstrong is observing the SYMPTOMS of how the crowd is moving, whether he knows it or not! So in order to predict how the crowd is going to decide, all I have to do is look at Armstrong's predictions, which have so far been spot on.

As he has pointed out tirelessly, people are fed up with the status quo and are eager for change. Bernie Sanders, Donald Trump, Brexit, the ongoing turmoil in Europe and the Middle East. The public institutions that the crowd created in the recent past to stabilize the global economy are falling apart at the seams, OF COURSE the crowd is going to switch approaches and try something new. As I have said in the past, I believe that Steem is a direct byproduct of this phenomenon. Steem is a private form of money and the Steem Backed Monetary system is, by definition, a PRIVATE MONETARY SYSTEM. The evidence for the trend is everywhere and it certainly doesn't help Clinton who is not only establishment by definition ... she is running on that premise!

All of this is to say that though I didn't watch tonight's debate, it didn't surprise me to learn that polls have Trump winning it. It doesn't really matter what happened during the debate. The crowd, after all, is not completely unlike the individuals that make it up. Think of it as a close friend. Like anyone it is highly unpredictable--who knows what it will do in the moment. But at the same time, if you know them well, when push comes to shove you know what their character and tendencies will guide them towards doing. In my humble opinion, the crowd is currently figuring out how to convince itself to vote for Trump while also being extra careful that it will not be making a mistake of existential proportions. However, that blade cuts both ways, on both candidates.

None of this is to say that Donald Trump is DEFINITELY going to win, and again I have no particular desire to see him in the White House. I just don't fear him as much as I fear Clinton, which is why I am willing to endorse her for my own personal safety.

*If you're interested in reading more about how I predicted Trump would win, I also provided an update to this prediction 2 weeks ago, another moment in time when Trump's polling numbers saw a dramatic correction and at which point I said,

"If on the day of the election Clinton's lead has narrowed to the margin of error, a Trump surprise victory would not surprise me at all."