Posted by on March 5, 2016

I just watched the most recent Republican debate and, contrary to the fairly neutral coverage that it has received, I think that Trump got mauled.  It is a preview of what is going to happen if he gets into the presidential debates.

Trump has claimed that he is going to pay for his approximately $10 trillion in tax cuts through eliminating “waste, fraud and mismanagement” in government.  When asked by a debate moderator for specific examples, he cited eliminating the Department of Education, cutting the Environmental Protection Agency and bidding out prescription drugs by Medicare, where he claimed (not for the first time) that “hundreds of billions” could be saved.  The moderator put some numbers on the screen showing that the budgets for the EPA and DOE are comparatively small beer and that the total annual Medicare bill for prescription drugs is $78 billion.  Trump’s numbers don’t even come close to adding up.[2]  Trump’s response was his usual: he floated down to the bottom of the pond and tried to muddy the waters.  But the damage was done.

Rubio pounded away on his hiring alien workers for his various businesses and buying products from overseas.  Cruz nailed him on his promiscuous campaign contributions, including funding for five of the “Gang of Eight,” who proposed a form of “amnesty” for illegal immigrants, and his four donations to Hillary Clinton’s national campaigns that could not conceivably have been business related.[3]   Rubio pointed out that his plans to torture prisoners or attack their families would not be executed by a military trained to ignore illegal orders.   Both of the candidates jumped on him for not releasing the transcripts of his discussions with The New York Times where he allegedly said that his stated immigration policy is just for the consumption of a gullible public – this is an issue that will not be going away any time soon.

Trump had feeble or non-existent responses to all of this.  Just like he has had feeble or non-existent responses to any criticisms that have been levelled against him throughout the campaign.  But this time there were only four candidates on the stage and the other candidates and the moderators actually had the time and inclination to review the errors, contradictions and flip-flopping in microscopic detail.

I have written many times how Trump has benefited from the large field of Republican candidates.  This most recent debate highlighted another way that it has helped him.  With seven or eight candidates on the stage, everything was a drive-by shooting, tailor made for Trump’s one-liners and insults.  Now that there is no longer a crowd to hide in, Trump is being more and more revealed as a shallow and deceitful fraudster.

As one of two in the presidential debates, with moderators even less sympathetic than Fox TV’s panel from this week, Trump will be destroyed.  This won’t affect his supporters, who are impervious to reason[4], but the independent voters who actually decide presidential winners will not be amused.

Trump’s Taxes

Another issue that isn’t going away anytime soon is Trump’s tax returns.  As Mitt Romney has pointed out, Trump’s refusal to release his “beautiful” tax returns and his evasive explanations for not releasing them, can only spell one thing.  And if anyone should know about the dangers lurking in tax returns, it’s Mitt Romney, whose own tax return fiasco was a major reason for his loss in 2012.  The difference, however, is that after all the dust settled, it is true that Romney used some pretty fancy tax planning not to render much unto Caesar, but at least he rendered much unto God (in the form of large charitable contributions to his church and others).  In the case of Trump, I suspect that he hasn’t been rending much unto anyone but himself (and his favorite politicians).

Trump has given two responses when asked to release his returns.  The first is that he has already disclosed his wealth in his Federal Election Commission filings, which give a much more complete picture of his assets than his tax returns.  This is true, but also irrelevant.  The voters don’t want to know about Trump’s wealth, about which he informs and misinforms them constantly, but rather about the amount of tax he has been paying.  The two things are not the same.  In fact, since paying one diminishes the other, they are closer to being opposites than similarities.

The second is that his returns are being audited and therefore he can’t release them.  Like his statement about the transcript of his discussion with The New York Times, which he claims that he won’t release because out of respect for the institution of the “off the record” media briefing, this is pure nonsense.  Among other things, this cannot excuse his failure to release the tax returns that have been audited.

This situation fairly screams evasion and a guilty mind, but his supporters still think that he is a straight talker.

Trump Needs to Bone Up on His German

When Rubio was pointing out that American soldiers would not obey illegal orders, Trump assured the audience that, unlike for “Little Marco” (as Trump kept calling him), his orders would be followed because he is a “leader.”  Before Trump repeats this argument, someone should tell him the words the Germans once used for a leader who expected his illegal orders to be obeyed: Der Führer.

(I see that yesterday, Trump reversed himself on this position, saying that he would abide by the law.  This 24-hour volte face matches his previous personal best.  He originally said (February 18th to CNN) “Well, I like the mandate…I don’t want people dying on the streets,” and then he said (February 19th on Twitter) “I was asked about health care…and have been consistent – I will repeal all of Obamacare including the mandate.”)

Kasich

The winner of the debate was undoubtedly John Kasich.  In addition to being a fundamentally decent and reasonable individual, he was given the chance to appear even more fundamentally decent and reasonable by comparison to the others.

Kasich has denied that he wants to be anyone’s running mate, but I think that there is a good chance he’s going to be asked the question.  Trump has said that he wants someone who knows Congress and the Washington ropes as his Vice President.  Kasich would certainly fit the bill; his hand’s-on and nice guy demeanor would also balance out Trump nicely, as would his geography.  For that matter, he would do a lot of the same for Cruz, if the nomination goes that way.

Although he might be asked, I somehow doubt that he would accept.  I think that he’d rather rule in Ohio than serve in Washington.  Particularly under someone like Trump…or Cruz.

Trump the Survivor

When you study investment management in business school, one of the first things you discuss is the following hypothetical:  Take 1,024 investment managers.  At the beginning of the year, randomly choose 512 of these managers to send out letters to prospective clients predicting that the stock market will rise that year; the other 512 will send out letters predicting that the stock market will fall.  At the end of the year, take the 512 who were randomly correct, divide them in two again and repeat the exercise: 256 predicting an up market and 256 predicting a down market.  At the end of 10 years, you are down to one person who has “called” the market for ten years running.  Everyone thinks that he is a genius.  But he isn’t.  He is just a random survivor.  Hence the name for this fallacy: “survivorship bias.”

Think of this the next time you hear Trump mouthing off about being a “world class businessman.”  The world of real estate, where Trump has made almost all of his money, is particularly prone to survivorship bias.  The more volatile the underlying process, the more pronounced is the effect.  And nothing is more volatile that real estate, particularly leveraged real estate in a major city (like New York).   This is exactly the field where Trump has played out his career.  Nearly half of his wealth is tied up in buildings within a four-mile radius of his extravagantly tasteless apartment in the Trump Tower.

As I pointed out before, Trump was bankrupt in the early 1990s.  This was a time when the gods of chance randomly assigned him the losing bet.  He was saved in that episode through his and his father’s political connections, his father’s money (which he used to pay off some of his more aggressive creditors) and the old truism: “Borrow $100 and you have a banker.  Borrow $1 billion and you have a partner.”  Still, in the world of investment analysis, this is known as a “100% drawdown”, and it is usually taken as a big red flag.

Others have approached Trump’s business career from another perspective.  The Economist has recently run an article that, among other things, analyses Trump’s investment performance.  Using data from Forbes magazine’s annual rankings of the wealthy, which is certainly a more accurate picture of Trump’s opaque holdings than anything that Trump claims, The Economist finds that his investment performance has been mediocre at best.  Going back to 1985, the first year that Trump appeared in the rankings separately from his father, and indexing his wealth versus the S&P 500 or Manhattan real estate generally, Trump would today be either 1.4 times as wealthy (if he sold everything in 1985 and reinvested in random properties in Manhattan) or 2.8 times as wealthy (if he reinvested in the S&P 500).

Matt Levine, one of the sharper knives in the BloombergView drawer, did a review of the Trump-versus-index analyses that was a little more favorable to Trump, pointing out how assumptions-dependent they are.[5]   But still the overall conclusion is the same: The claim that Trump is some kind of business genius is far from proven.

The sad thing is that, if you point out the fallacies, shallowness and inconsistencies of Trump the political candidate to one of his supporters, the single most likely response you get is:  “If he didn’t have smarts/good judgement/good advisors/good character/etc., then he could have never gotten to where he is in the business world.”  Actually, this may not be true.  He may just be a survivor.

Australian Housing

Other than a few fleeting references to the folly of being joined at the hip to the China bubble, Australia doesn’t get much coverage in this blog.  But recently a clip from the Australian version of 60 Minutes has caught my eye.  It covers the Australian residential property market.  This looks like it is about to get a triple whammy: weakening economic fundamentals from the commodity implosion, weakening investment demand from Chinese investors, and lots of debt.

For Americans, this is déjà vu all over again.  But the best part of the clip happens at about minute 8:45, when Kate Maloney, previously lionized as “Australian  Property Investor of the Year” but now bankrupt after flying to close to the sun, actually has the stones to blame the banks for lending her too much money.  And this should also be déjà vu all over again for Americans.

Milo Traumatizes University of Pittsburgh Students

I have previously introduced readers to Milo Yiannopoulos.  He has been on the loose lately.  Read this article about a recent speech he gave at the University of Pittsburgh that left some students “in tears,” feeling “unsafe…in danger…triggered,” and looking for a “safe space.”  All of this because he called anyone who believes in the gender pay gap “an idiot,” he pointed out the hypocrisy and errors of the Black Lives Matter movement[6], and committed other outrages against common sense and decency.  At least as those terms are understood in the politically correct world of American academia.

Term Limits

Lastly, I leave you with some recommended reading on the recurring libertarian suggestion of term limits for all government officials.  The suggestion takes the form of an Einsteinian thought experiment.  Here is the link.

Roger Barris

Weybridge, United Kingdom

 

I Wish That I Had Said That…

“Tell the Lord Privy Seal that I am sealed in the privy, and can only deal with one shit at a time,” by Winston Churchill, when he was interrupted on the toilet to meet with a government official

 

[1] …if you are sick of hearing anything more about Donald Trump.  I can’t help myself.  I am in the midst of an obsession.

[2] The same point was made in a recent article in The Economist entitled “Donald ducks the big questions.”  The conclusion?  “All politicians promise too much, of course, but Mr Trump’s plans differ in the sheer scale of their implausibility.”

[3] For some bizarre reason, Trump thinks that he can dismiss all of his crony capitalist contributions as nothing more than a cost of doing business.  Well, maybe, but on the other hand he is making some pretty big assumptions about the cynicism of the American voting public.  I guess that he has no alternative.

[4] Remember the quote from Jonathan Swift, the author of Gulliver’s Travels: “It is useless to attempt to reason a man out of something he was never reasoned into.”

[5] Depending on, for example, the starting year for the analysis, assumptions about consumption, tax assumptions, etc.

[6] Which are more fully discussed in a WSJ opinion piece entitled “The Myths of Black Lives Matter.”  Among other things, the article makes the flagrantly obvious point that the overwhelmingly dominant cause of violent death among African-Americans is other African-Americans, including ones who wear police uniforms (and who, along with Hispanic officers, are much more likely to shoot on the basis of “threat misperception” than their white colleagues).  The article finishes up with some recent tragic cases of murder, saying “(t)hose were black lives that mattered, and it is a scandal that outrage is heaped less on the dysfunctional culture that produces so many victims than on the police officers who try to protect them.”

print

Comments

  1. bernard lahey
    March 6, 2016

    Leave a Reply

    Am I right in thinking that comparing the Donald’s wealth accumulation to the S&P ignores the fact that presumably even the Donald pays at least some tax on his earnings whereas the total return on the S&P is pre-tax

    • Roger
      March 7, 2016

      Leave a Reply

      It’s a good point. To be honest, these comparisons are tricky and I would have to look a lot more into the details to be sure that they have done it correctly. The tax is a big issue, although Trump is pretty much a “buy and hold” investor (eg, he has owned the Trump Tower from inception) so he probably hasn’t paid much capital gains tax. But then there is the issue of how distributions from his properties have been taxed. He also probably holds a lot of these assets in pass-through entities — further complications. On the S&P side, the big question is dividends. I don’t think that they have indexed it with dividends reinvested, probably choosing to ignore current distributions (and their taxes). But I don’t even know the answer to this question. However, if Trump hasn’t sold much and thereby not incurred much capital gain, and if the S&P is without dividends, then the comparison probably flatters Trump’s performance because his net worth would include his compounded after-tax and after-consumption distributions, whereas the S&P would include nothing for dividend distributions. (For both his real estate holdings and the S&P 500, there would be a big latent capital gain at the end of the analysis, but this would apply to both sides and so there would be no distortion.)

      But I think that they basic point is still correct: The case for Trump as a business genius is far from proven. This is also shown by his Forbes rankings. I think that his peak ranking was somewhere in the high 20s. He is now in the 120s. So, compared to other very wealthy people, he is certainly falling behind. I would much prefer, for example, having Warren Buffett running for president. Or, as I have pointed out before, Michael Bloomberg. Or a bunch of others. I wouldn’t agree 100% with them on policy, but at least they could genuinely claim to be smart and talented businessmen/administrators.

      Roger

  2. Jose
    March 7, 2016

    Leave a Reply

    Don Rogelio,

    How is it going?? I see you are increasingly prolific.
    I read you constantly.
    You should write a piece on Cruz. looks like Trump is a twat, but how about Cruz?? He does grab fewer headlines, but the little I read, the scarier the man looks.

    JL

    • Roger
      March 7, 2016

      Leave a Reply

      Hombre! Como estas? (Sorry, I can’t do the funky upside down question mark at the beginning of this sentence on this keyboard.)

      Good question. I have actually just gone back to re-read some of The Economist stuff on Cruz. He is definitely not my first choice and he is definitely too religious/socially conservative and too militarily belligerent for my tastes, but at least he isn’t an loud-mouthed, lying imbecile, so he has to be better than The Trumpster. A lot of what he has been blamed for is his willingness to play games with the US debt ceiling in order to stop certain government programs. To be honest, this is not the worst imaginable sin from my perspective. Frankly, only a crisis – like Canada experienced in the 1990s or the UK experienced in the 1970s or like your homeland has recently experienced – can focus the politicians on real reform.

      But, I will re-read and report back.

      Adios, Don Jose.

Leave a Reply

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>