In 2016, the first Trump victory and the Brexit referendum created a deep sense of angst in me. I often thought of both Trump and Brexit as the wrong answers to the right question - that income inequality had become so stretched, that politicians and voters needed to become pro-labour. This suggested to me that policies to promote wage growth would be enacted, and inflation would be greater than expected, and I suggested the GLD/TLT trade, which has been good, although there are signs that the Trump election win was at least a temporary blow off top.
The big problem - for me at least - was the continuing dominance of US tech, and the US in general over other asset markets. Part of the pro-labour argument would be that you see stagnating nominal asset prices, as wages rise, reducing income inequality. You have seen this in the rest of the world to a degree, but not in the US. Even more confusing has been the vastly different price action of US tech and Chinese tech. I had assumed a pro-labour world would also see western politicians take on tech monopolies.
But as I mulled over the Trump win, the dichotomy of a surging US, and the “pro-labour” trade resolved itself in my mind like a thunderbolt. Unlike the first Trump victory, this one has brought great clarity to my thinking and a calmness. As the subtitle above suggests, the world makes more sense if you understand it as the digital world is eating the physical world. The best way forward is to ignore how something looks or feels in the real world, and to focus exclusively on how it looks or feels in the digital world.
Donald Trump is a good example, but one that readily generalises. In the “real world”, Trump was a property developer with a mixed record, a serial womaniser, was definitely involved in the storming of Capitol Hill, and has very unusual economic policies. 15 years ago this made the idea of Trump as President nonsensical, but the digital world and social media changes the calculation. Success in the modern world seems to centre on the ability to master modern social media. And modern social media tends to bypass the traditional gatekeepers of journalists, editors, and other keepers of “mainstream” views. But what you need to succeed is the ability to be viral - to motivate people to follow you on social media. I am not a big Donald Trump fan, but I have no inclination to follow Hillary Clinton, Joe Biden or Kamala Harris on social media - and that was the key to victory. For the Democrats to recover, they need to move to a much heavier focus on social media, even cult like personalities. My hope is that the Republican Party has adopted the social media to win elections, but kept the organisational heft to implement good policies.
Looking back at US politics, Obama was probably the first viral candidate, and the Democrats won back to back presidencies by organising and accepting this viral nature. Trump has now won his second term by leaning into this viral trends, and with the support of the most viral business man on the planet- Elon Musk.
You can see in this election how clearly the digital world is eating the physical world. Some people believe that Murdoch’s Fox News Network is the power behind Trump. But in this election, we saw a very good showing by Trump among Hispanic men. As far as I know, young Hispanic men is not a key demographic for Fox News. Trump’s mastery of social media, not Fox News is the key to his success. When Trump speaks of lamestreet media, he is not joking, and he is also including Fox News. Back when I was managing money, I was well aware of this viral nature. I would get write ups in the FT or Bloomberg, and there would be no response from investors. But if I had a write up in Zerohedge - and the servers would crash. At the time, I thought traditional media and viral media would merge, but that has not been the case. Traditional media has tried to maintain its political power, when in fact everyone is more interested in direct to direct communication, not gatekeeping. Mocking traditional media is easy - they are like the old feudal barons as the French Revolution swept them away. Not accepting the viral nature of the digital world is refusing to accept the new world.
The clarity that his has brought to me is that slowly but surely the digital world is eating the physical world. When the internet first took off, it just seemed like another, more efficient channel for existing world to utilise. But what we are seeing is that opinion making has become decentralised. Getting the blessing of the editor of the New York Times is less important than going viral. In the old world, cafes located in the best locations with the most footfall did best. In the new digital world, the cafes with the best social media game are the ones that are busiest. Physical location matters less than digital location. If you have no social media game - you have no game at all.
Crypto, and bitcoin, which have little no support in the physical world (ie no government or guns) have a fantastic digital position.. Bitcoin is an extremely viral product, and its supporters believe in it. And this belief makes it real.
What this line of thinking is allowing me to square the circle of the obvious pro-labour trends that are apparent in politics everywhere, and apparent in the performance of gold vs treasuries, GLT/TLT, but not apparent in the S&P 500. The virality of pro-labour message is totally reliant on the virality of the leading stocks in the S&P 500. Companies that connect huge masses - Meta, Google, Apple, Microsoft, and run the cloud computing that allows such node to node communication to work are the winners - but it is exactly the success of this viral business that drives the pro-labour trade.
What has made the US great has been its ability to allow business to adopt and shape the country according to new technologies. The US was the first nation to truly adopt the car, and organising principles of the car - straight roads, suburban life, the interstate highways and largely ignoring rail as a transport method, and government looked to support these champions. The US, and its politics is seems, have fully embraced the realities of social media, and the need to be viral. It makes it obvious why Chinese tech has lagged US tech. The Chinese Communist Party needed to take control of this part of the industry to avoid the rise of alternative power, particular Jack Ma.
The US has fully adopted the social media economy - and is surging because of it. The rest of the world will have to follow, both politically and economically. For me, it means I need to fully embrace the digital world, rather than seeing as just another communication channel of the old world. You should see me more fully engage with the digital world going forward, in both investing and social media.
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