Wednesday, 9 November 2016

U.S. election, Black Swan and Post Mortem

The worst fear has materialized as a Trump presidency has become a reality triggering a massive selloff in the global financial markets.  Dow Jones Industrial Average futures are down by more than 800 points or 5 percent. The Mexican peso is down more than 11 percent.

This rare event called Black Swan in a book by Naseem Taleb talks about rare event as such with low probability of occurring but high risk or tail events in statistical terms.  In addition, financial markets are mostly ill-prepared for such event as can be seen by the huge selloff.  Brexit is another Black Swan, but the impact may not be as significant as the U.S election.

What did the political pundits who have been calling for a Hillary Clinton victory, albeit a narrow one, miss? Even key swing states such as Ohio, Florida and Michigan which y were supposed to be safe for Democrats evaporated into solid red Republican strongholds on election night.    

I think one exit poll said it the best. Most Americans, especially the have-nots, mostly male, White, non-educated, have suffered a lot economically in the past decade. As companies shut down plants and shutter production to low-cost labour countries such as Mexico and China, these people have not been able to transition to the new knowledge-based economy.  We only think of how much wealth is generated by Facebook, Netflix, Amazon and the likes, but the wealth is only concentrated in a few hands. And for the majority of the rural folks who have been left behind, Donald Trump represents the last hope of bringing back the jobs and the glory days. We know this is not going to happen. But when you are down, you don't think rationally. Hence the vote for Trump represents a hope for change.

I believe the email issues surrounding Clinton and the allegations about Trump's sexual abuse of women, may just be big red herrings clouding the real issue, as voters already made up their minds long ago and wanted change.  Don't get me wrong, though, as I am totally against what Trump had allegedly done.  My hope is that cooler heads can prevail and his advisers can charter a much more realistic path for his presidency.

Another lesson learned...... or not .   This will go down in history books as one of the most fascinating presidential race.    

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