Iron Capital Insights

  • Iron Capital Insights
  • March 29, 2018
  • Chuck Osborne

How Not to Win Friends and Influence People

Just when we thought all was safe in the markets, the White House brought out Wilbur Ross. Wilbur is the current commerce secretary and the man behind the threats of a trade war. After the President himself scared everyone with tariffs on steel and aluminum, an idea that originated with Wilbur, he started suggesting other trade-restricting moves and the market reacted negatively. So, Wilbur went on TV to calm the nerves.

During his interview on CNBC he said things like, “This will not be the end of the world.” For context, here is a short list of things that were “not the end of the world:” the plague, the dark ages, colonialism, many wars between the French and the English, War World I, World War II…need I go on? He also said it will not drive us into an economic depression. Considering that the financial crisis and the 40 percent drop in the stock market that followed was also not a depression, I guess we are supposed to take this as good news.

I must confess, I have less than zero respect for Wilbur. Wilbur is a former attorney who made one lucky private equity deal and then created a reputation for himself by claiming that his firm’s assets represented his actual net worth. Once Forbes magazine bought that deception (they have since apologized), he used his reputation as a “billionaire investor” to make several million dollars. How that fraud did not eliminate him from serving in an administration is beyond belief. But, I digress.

It’s no surprise that Wilbur’s calming words about “not a depression” and “not the end of the world” did not calm the markets. He did say something that seems to have been missed:  he said there will be a negotiation. I will not admit to fully understanding our current President, but one thing I do believe about the real estate developer is that everything to him is a negotiation. Hence, the outlandish statements. I’m guessing that Donald Trump has had a lifetime of success at the negotiating table by always starting with an outrageous position. When the other side talked him off the cliff he ends up walking away with what he was really after and perhaps even more. The trade reality is likely to be less concerning than the trade banter.

While this was going on, a British news channel has uncovered an astonishing fact: social media sites sell your data, and a lot of the stuff that is out there is fake. (Stop the presses!) My favorite part is when the executive from the “marketing” firm explained on hidden camera how they could get some Ukrainian models to pretend to be leaving a politician’s house. They would film it and post it to people who they have identified as having a poor view of the politician to begin with. The art of fake news.

So now Facebook primarily and others secondarily are in trouble for what is essentially their entire business plan. There are many analysts who have wondered when people would wake up to what these companies actually do to make money. It appears that has happened, at least temporarily. The longer-term damage of social media is likely the second part of that story:  how individuals self-select the feedback loop they wish to be involved in so that only their beliefs are ever confirmed, and we become ever more polarized. For now, we seem more upset that all those tailored stories and advertisements that we clicked on were put there by people who purchased our “data.”

This brings on another issue altogether and that is our increasing habit of arguing in huge generalities. What “data” specifically? Do they know I’m bald, or do they know my social security number and bank account information? All “data” is not equal. This is a rabbit hole for another conversation.

Meanwhile, the real economy is clicking along. GDP growth just got revised up to 2.9 percent. These are the things that actually matter to investors. This volatility will pass and the bull market ride will continue. Nothing goes up in a straight line. In the meantime, let’s agree to choose more carefully what we put out in the public domain, and for Pete’s sake keep that microphone away from Wilbur.

Warm Regards,

Chuck Osborne, CFA
Managing Director