Trump, Markets, Infrastructure and Other 2018 Mistakes
(Bloomberg Opinion) -- Each year, I make a list of what I got wrong in the past 12 months. Publishing this in the full light of day allows me to own my mistakes and learn from the experience.
I have been doing this for about a decade. It is very helpful to my “process”; I hope you find something useful in it as well. On to the mea culpas:
1. Trump won’t hurt the stock market: I have written fairly extensively about why mixing politics and investing is such a bad idea. It’s emotional, not objective and has shown poor results over time. As I said before, moves in financial markets usually have little to do with normal presidential actions.
It took me until December to acknowledge that Donald Trump isn’t a normal president: He complained about Federal Reserve interest-rate increases after he replaced a dovish Fed chief with a hawkish one; he ran up the deficit during a boom, when he should have been paying it down; and he started what is beginning to look like a protracted trade war with China, after boasting it would be easy to win.
2. Buying emerging markets: They had been my default answer to “Where should I put cash to work today?” I have suggested that emerging markets were a great long-term play and that low valuations would revert to the mean, eventually. Maybe you might look foolish for a few years, I figured, but in a decade or two you will look like a genius.
Well, it has been a few years, and the foolish part seem to be true. We’re still waiting on the genius part.
3. Infrastructure: Yes, I figured that this would be something Trump, the self-anointed master builder, could get this one done. Blame my wishful thinking on hoping to see a modern rail, road, airport and electrical-grid system that befits a great nation. Nope.
Just one year ago I wrote that even the U.S. Chamber of Commerce, which often aligns its policy stands with those of the Republican Party, was pushing this and even took the heretical position of backing a higher fuel tax to help pay for upgrading infrastructure. This idea died almost as soon as it was raised.
Enough of my slam-dunk mistakes. There is another category in which there’s a good chance I was wrong, though a final determination may not be possible to make:
1. Facebook’s role in the 2016 election: Shortly after the 2016 presidential election, I suggested that the social network didn’t determine the outcome of the election. Sure, it spreads fake news, but I figured it changed few, if any, minds.
Or so I argued. As it turned out, the election was much closer than originally reported. Swaying 77,774 people across three states might have been all that the Russians needed to do to nudge the outcome in the direction they wanted, favoring Trump. Last month, a Senate report concluded that Instagram, a unit of Facebook, was an even “bigger Russian tool than Facebook itself.”
I’m still going to count this one as probably, rather than definitively, wrong.
2. Don’t be afraid of October: At the start of that ill-starred month I wrote that investors should worry about September more than October, based on historical performance. Equity markets promptly went straight down, continuing to fall for the next three months, declining almost 20 percent. This was, of course, a discussion of probable outcomes, not a straight-up forecast. Just because the dice come up snake eyes doesn’t mean the math was wrong. Still, this time October was worse than September.
3. There’s nothing old about this bull market: The discussions about the age of bull markets are so silly. Age isn’t what ends bull markets, nor is there anything magical about a 20 percent decline as an indicator that a bear market has started.
Now we get to argue whether the recent 19.78 percent retreat (on a closing basis, not intraday) was indeed the end of the long bull market. Never mind that the Russell 2000, the Nasdaq 10 and the Standard & Poor’s 500 all suffered declines of more than 20 percent peak to trough. With three major indexes down more than 20 percent, we’re now officially into cyclical bear-market territory. Whether the longer-term secular bull market is over has yet to be determined.
4. Apple magazine cover indicator. I am fond of pointing out that certain indicators that work with entire indexes or markets do not work with single companies: To wit, the Apple magazine cover indicator. As I noted, in one form or another Apple Inc., former Chief Executive Officer Steve Jobs or current CEO Tim Cook have been on countless covers over the years. Cherry-picking those that precede a share decline while ignoring the rest amid years of huge gains is an inane exercise.
That’s my list for 2018. Check back next year — the odds are pretty good there will be plenty of new errors to own up to.
Trump won Pennsylvania by 0.7 percentage points (44,292 votes), Wisconsin by 0.7 points (22,748 votes) and Michigan by 0.2 points (10,704 votes). Just as an aside: there are almost 5,000 voting precincts in Michigan, and Trump's margin of victory was an average of 2.2 votes per precinct.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Barry Ritholtz is a Bloomberg Opinion columnist. He founded Ritholtz Wealth Management and was chief executive and director of equity research at FusionIQ, a quantitative research firm. He is the author of “Bailout Nation.”
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