Once again having normal center-right to center-left politics would have given one the best model of reality. It was always extremely obvious that someone with the intellectual and character issues of Donald Trump would be a poor choice to steer the ship of state.
Normal people suffer from a problem in democracies: They are boring.
The reality is you the person you want as president is the most boring bureaucrat who just makes things works and is trying to simplify the life of everyone so he doesn't have to deal with it.
Best tax code I ever read was a proposal written by a special manager of the Tax Exempt and Government Entites section of the IRS (This was prior to Lois Lerner, who we both agreed was a idiot) for Senator Grassley, beautiful piece of work that was a political non starter, would have reduced the tax code to 100 pages and simplified filing, but also exposed all the levers so that the house could tweak them directly and get themselves in trouble. Also would have had the government sending you your taxes for confirmation, so most people could just rubber stamp it and send it back unless you had stock trades or ran a business.
*THAT* is who SHOULD have been president.
But those people, while beloved by the people under them, suffer from *not promoting themselves*, and therefore cannot be seen over the noise and the pomp raised by the professional entertainment and litigation classes that drown everyone out.
Youtubers should not be president. Entertainers should not be president. The pundit class should not be president. Lawyers really shouldn't be president.
But the people who should be president are unseen,
I was talking to a guy recently who does training and consulting for business executives and he was describing his consulting business to me: In order to climb the ladder (corporate or political) you have to be a big self promoter. Quiet people don't get noticed and don't move up the ranks. This leads to a lot of narcissists in high level executive positions. The problem is that narcissists are inherently terrible at managing people, so they don't do well once they reach those management roles. The guy I was talking to provides training seminars to these executives to teach them what they don't know about interpersonal skills.
The same happens in politics. The people who are good at campaigning are typically not good at actually running things, and the people who would be good at running things aren't interested in self promotion.
haha-this is so true. I'm a consultant and dealing with these self-promoters is suffocating. I'm a logical, rational person and someone always willing to share the credit, so I get where you are coming from.
It's like in "The Wire" when Clay Davis and Clarence Royce are profiled. Do either make a difference? Actually do anything with their political power? Represent their consituents? Nope. Both are grifters, gladhandlers, charismatic politicans that can pull smoke and mirrors shows to get support of black leaders in Baltimore. They scratch backs and take credit for the work of others. Usually getting re-elected while doing so!
"Best tax code I ever read was a proposal written by a special manager of the Tax Exempt and Government Entites section of the IRS (This was prior to Lois Lerner, who we both agreed was a idiot) for Senator Grassley, beautiful piece of work that was a political non starter, would have reduced the tax code to 100 pages and simplified filing, but also exposed all the levers so that the house could tweak them directly and get themselves in trouble. Also would have had the government sending you your taxes for confirmation, so most people could just rubber stamp it and send it back unless you had stock trades or ran a business.
*THAT* is who SHOULD have been president."
Basically only have a real shot in a parliamentary system.
I can’t emphasise enough how much you guys (U.S.) desperately need a parliamentary system.
Biden would have been up there under the lights in question time day after day, unable to be hidden away. He may well have stepped down or gotten rolled by his colleagues in an internal party confidence vote.
Trump - if he’d ever have made it in the first place - would have had to be there as leader of the opposition, actually voting on every piece of legislation put to parliament. No hiding getting others to vote against stricter immigration.
Now with the market tanking it would be simple for his colleagues to just cut him down and send him to the backbench.
Parliamentary systems self-correct in a matter of days. Not four bloody years.
Yeah I think this is the analysis spot on for Silicon Valley.
Like the SV bank run was very much a product of herd mentality.
And you articulated the contrarian mindset well. I think the incentive structure has made them prone to be overly contrarian like missing one investment is nbd for VC while hitting one investment can cover 100 or so failures - but not everything works like that irl.
In fact, one thing Silicon Valley is NOT known for is balanced or well rounded personality, so…
(Btw I saw this Shaun guy’s profile out of curiosity and his investment philosophy felt very Silicon Valley saying “I like high IQ entrepreneur” lol like I’m very nit picky here but I prob wouldn’t phrase it this way to describe his investment philosophy but hey there’s a reason I’m not a Silicon Valley entrepreneur)
I can think of very few people who entered a relationship with Trump and came out of in better shape than they went in.
I would make an exception for people who were almost anonymous and then used the clout of being in his orbit to become right-wing grifters.
But established people with companies or high-level political positions? Being close to Trump is like poison. Sessions, Giuliani, Pence, Tillerson, John Kelly, and many others can tell you that. My guess is Elon Musk will soon be the cautionary tale to dwarf all others.
It’s also just plain dumb to start a war you can’t win — ask Putin how that’s going.
Trump and his Silicon Valley backers seem to have forgotten that it’s not always the biggest or strongest country that wins. It’s the one that can endure the most pain and keep going. That’s the central lesson of Vietnam. To paraphrase Kissinger, the ultimate determinant of a war’s outcome is domestic public opinion.
And the truth is, the American public has very little appetite for the kind of economic pain a trade war inflicts — especially when they don’t see it as necessary or fair. By contrast, countries that feel attacked — like China or even Canada — tend to have a much higher pain threshold. They’ll dig in. We won’t.
The trouble with SV folks (I know a few) is that they have been so successful in one area of the world that they begin believing their own hype. Expertise in one area doesn't mean squat in another. My wife is very smart but can't tell you about finance; she's a physician and has forgotten more anatomical definitions than I'll ever know. My brain doesn't work like that: I'm a numbers guy. Dollars to donuts no SV tech bro could be a good therapist or nurse, even if they wanted to be. Nor do they have much EQ to manage others and get the best performance out of their team.
Also, much of their success is due to luck. They weren't born in a small village in East Africa or even in Podunksville, Idaho. They got into the right college, made the right connections: they knew how to navigate the system. They were born at a time when technological advances and United States investments had made the world ready to accept companies they built. The kid from small town Idaho, growing up in the 80s, may never have heard of Harvard or even really know anyone who went to a 4-year college. Same with poor urban kids. They never even get to the starting line. 90% of success is being in the right place at the right time.
Every successful business owner owes a lot to a highly functioning United States of America. A good transportation network means that goods and customers can get to your door. Education ensures a large middle class to buy your products. If you take the libertarian approach of no government investment in infrastructure or people, you get a society that is, by and large, a failure. Who maintains the roads? Every person is assigned 20 feet in front of their house? How are people educated? Just figure it out for themselves? That's a recipe for a return of the Dark Ages.
There is always a bigger picture explanation about why things are or how they could be. Only the less self-interested will fight for those, as they take a long time to pay off. For example, the Marshall Fund ensured that Europe could be rebuilt, wars would stop happening, and that other economies would grow so that we'd have more places to sell goods and services. All of these indirectly contritubed to the post WWII boom that suddenly everyone takes for granted and thinks we should burn down. Sure, maybe we could have been stingier on tariffs, but in the big picture, we grew the pond. Would you rather be in a small pond with 100 fish, catching 20% of them, or in a larger pond with 1000 fish, catching 10%? Of course the latter. But tariffs essentially guarnatee us the former: big fish in small pond.
I found myself agreeing with you quite a bit, including the fact that luck plays a big part in success. Then you started talking about starting lines and where they were born and that's complete nonsense. Have you been to the SV? There are huge number of immigrants here, including me. You think their lives were planned out based on where they were born? A lot of people saw an opportunity and took it. There's nothing stopping others from doing the same in the age of the internet.
Also, I understand that not everyone can be everything but I'm pretty sure that many who work in the valley can be a good therapist or a nurse if that's what they were passionate about.
You don't think SV has managers and leaders who get the best performance out of their team? If you want to make a point about the ecosystem and infrastructure that enables growth, that's fine but please stop talking nonsense about stuff that you have no clue about.
Well, I was more talking about the folks leading the charge here w/regards to, say nursing. Can you see Zuckerberg or Musk doing anything like that? No, because they are both seemingly incapable of experiencing empathy. Surely there are regular folks, but engineers in general tend to be really good at certain things, really bad at others (I'm an engineer BTW-my wife reminds me of it constantly). Also, I said nothing about "immigrants". Both of my sister in laws are immigrants: One has a PhD in physics from that school in Palo Alto that uses cardinal red as their primary color. The other, a Masters in Psychology from that state school across the bay in Berkeley.
It's not about being an immigrant whatsoever; both my sis-in-laws came from nominally upper class families in their countries, went to English speaking private schools as kids, and had resources and family connections. However, I'm guessing there aren't a lot of folks in the Valley from Sudan or Papua New Guinea for the same reasons. Likewise, a kid growing up in a rural American town in the 80s didn't have access to the internet and probably barely knew anyone who even went to college (that's me, BTW). Rural schools prepping kids for blue-collar lives do not serve college-bound students well. I was woefully unprepared for college, far behind other students, and again, with no internet and nodoby I knew who got a 4 year degree outside of teachers, you don't yet even know what you don't know.
Can you imagine Dukie and Bug from The Wire somehow breaking out of Edward Tilghman Middle School in West B'more, lucky to even graduate 4 years later, reading at an 8th grade level, and somehow ending up the Valley? I can't really. Dukie drops out to assist corner slinging because he fears he's not tough enough for HS (he'll get beat up) and to take care of the younger Bug because Bug's mom is a dope fiend. That's a tall mountain to ask someone to climb. Earn money for and raise your younger siblings, while getting prepared attending a school that has no resources and where very few even go to community college, leave everything you know because you've never been outside of a 15-block radius of where you grew up, and get to a top college and the right connections out of all that.
Parent success, whether money, connections, resources, knowledge, is by far the largest determination in the success of their children in the United States.
Did anybody else notice the story-behind-the-story on Musk here though?
We've all seen the visuals of Musk standing in the Oval alongside Trump, and all of the meetings he had with Trump at Mar a Lago. Musk, we're to assume from these visuals, was joined at the hip with Trump's policy teams, maybe even leading them. We're imagining countless all-day meetings in December of 2024 with Musk and Trump's people laying out.. THE PLAN.
Right? Wrong.
Musk is pushing back on policies Trump has ALREADY ENACTED. Musk, in other words, was never privy to any key planning meetings--if there even were any.
And also try to comprehend the level of self-delusion Musk has to operate under in order to appear surprised by anything that is happening right now.
Musk is a smart businessman who went to the Whitehouse with a plan? Nope: he's just an internet troll who jumped at a bunch of photo ops.
Seems like a classic case of projecting hope. This crew was really unhappy with Biden and created a mental fantasy of what Trump would do. Same for a lot of people. Didn't help Harris didn't seem like a big enough change. I suppose if your thinking is 0% chance of improvement with option A and some chance of improvement with option B, this crowd goes with B. They just didn't think option B would be this much worse. For me the calculation was 'known level of sucking versus very possible vastly worse amount'. As a programming my thinking always goes to the worst possible thing that could happen:).
"Failure to properly assess risk" is the most common phrase I use in my security work for explaining how things went horribly, horribly wrong.
Replace the junior third of your coders with an AI trained on generic languages and with no access to your actual codebase? "Failure to properly assess risk."
Contract out a section of your API to a subcontractor in Thailand who you've never met because they were cheap and you were trying to make budget? "Failure to properly assess risk."
Purchased a company based on the hype and try and merge the products together through a API built by a couple of interns you then decided not to hire? "Failure to properly assess risk."
It just seems like the C levels never think that way. I've seen it over and over, they's rather the company go out of business than to admit they are on the wrong track, or one of their decisions isn't working out
I'm the type of person who gets called in when C levels fucked up enough that *The Board* wants answers.
The fact the board drove the C levels to that level of madness is inconsequential, when systems fail and they find themselves with lawsuits and/or their precious data gets locked behind ransomware, someone's heads are going to roll and Jerry in Accounting isn't the type of name the board will accept.
Also, first hand experience:
Most C-levels are in effect just want to be left alone to play video games between high pressure meetings. They therefore let the board roll all over them and make the mistake of rubber stamping every idea possible and telling the rest of the C levels 'The board has declared...' when the board was just spitballing ideas to make themselves feel important.
At least we dealt with the 8 trans women athletes … worth far more than the 5 trillion economic hit from the tariffs. Trump playing 5 dimensional chess … running circles around everyone.
I voted for her and I didn’t trust her one bit on the trans issue. She chose not to talk about it. That’s all. She never made an effort to explain her ridiculous positions in the 2020 primary.
There were plenty of political analysis write up both in 2020 and 2024 about Harris's positions based on the Democratic primary lanes available in 2020.
If you can't be bothered to do some research, you are just echoing Republican talking points that held Harris to a higher standard than Trump.
Women gotta be perfect, men just need to flap their gums.
And you need to make up your mind. Did Harris "choose to die" on the Trans issue, or did she never talk about it? The fact is that the noise about this was 100% from the right wing echo chamber.
What was her position on trans in 2024? If she didn’t have anything to say, you have to assume that she held on to the unpopular positions of the Biden administration and her prior public comments. You’re not the only person who follows politics and knows shit. I voted for Harris so stop saying idiotic nonsense like I’m holding her to a higher standard than Trump. I’m explaining to you why others were right not to accept her silence on the trans issue. It wasn’t a major factor for me although I disagree with the Democrats on this issue.
I don’t want a President to support the extreme positions of the trans movement. Just as I don’t want a President to support extreme pro-life positions. Harris was part of the Biden administration and had taken extreme positions on trans in 2020, so the onus was on her to explicitly walk back those positions. She decided to stay mum and tried to run out the clock, which didn’t work. There were more significant factors for her loss.
It seemed clear that Harris wasn’t going to do much (if anything) on trans issues as President. As compared to Trump, who is trying to ban trans people from the military and erase trans identity entirely. Doing nothing would be a much better course of action.
Why is it that when the D's lose Detroit it is about the workers, but Silicon Valley "supports" Trump because of some noisy Tech Bro executives who couldn't engineer themselves out of a paper bag?
Because everything in the media is about narratives. Nate buys into them and writes articles to cover the popular narratives of the time. But you’re right and it’s refreshing to see your post. Good luck, friend!
A realist would say that’s why he made it a free post. My honest view is Nate is deeply in the Village, as is Silicon Valley, if there ever were a village. The real River are the folks outside of the mainstream dominant political forces who want their electeds to actually get s*** done. Contrarians and libertarians think they are the River, but they’re just part of the same tired debates.
Anyone who has had any meaningful relationship with someone with severe mental health challenges knows how exhausting and chaotic the impact on your own life is. This is Trump. The country needs Congress to reign in those powers now before the economic winter sets in.
I said on another comment something similar. Trump wouldn’t have lasted today in a parliamentary system. At the same time he could go on for ever but with the president his term ends in January 2029.
For some of them, getting Lina Khan out of the way might have been worth it but that's counterbalanced by a low IQ person hell bent on blowing up the global economy because he's too lazy to read an Econ 101 book.
Personally, I think the market is still pricing-in a fair amount of assumption that Trump will eventually back down from the worst of it. If they knew for a fact right now that he was going to see this trade war through (with his level of stubborn he very well might), I think things would have already fallen even further than they have.
I've lived and worked in Silicon Valley for decades. My whole career has been in tech companies. The people of "Silicon Valley" are overwhelmingly anti-Trump. We've all been disturbed by the sight of our CxOs turning into rabid right-wing ideologes. Once upon a time they cared about their employees and customers. Now they don't. It's been a disturbing shift to have had a front-row seat at. This shift isn't new. It's been going on for a couple of decades. Some of it is driven by their business model: companies whose income is driven by harvesting the souls of their customers (mostly the ad-driven businesses) have been dramatic. One of the reasons I like substack is that its business model isn't driven by advertising. The incentives for the business are different, unlike companies like Facebook and Twitter/X, which survive on soul-sucking.
Seems to me like Nate's just being thorough about which log he's using is all.
For the folks who don't live and breathe log transformations, the good way to think about this is that you often take logs of things that are a) always positive but b) strongly rightly skewed, like incomes, where most people are pretty low and then you gots some billionaires.
One major reason you would do this is because once you've taken the logs, a change in the log value becomes roughly a percentage change. Things get weird with really big changes, but it's usually a pretty good approximation.
If Google's log market value increases by 1, you can think of it as Google's overall market value increased by about 1%. This way you can think about who's gaining or losing in an index with some normal and some really rich firms, without your numbers getting swamped by what's happening with just the big firms.
The Silicon Valley index described here has a Beta of 1.33, meaning you expect its excess return over the risk-free rate to be 33% greater than the market as a whole. On that basis it outperformed all three indices quoted since the election, and all but the Dow-Jones since inauguration.
But we can do a better job than the single-factor model. There are five Fama-French factors used as an industry-standard way to describe stock portfolio exposures. Typical stocks have r^2 of about 0.6 to the five factors--meaning the factors explain about 60% of the variance in the stock returns--but moderate-size, reasonably equal-weight portfolios like the SV50 will generally have r^2 above 0.9, unless there is some commonality in the stocks like all from the same industry or same country. So the way to tell if there is a significant Silicon Valley effect is to see if the SV50 returns deviate from its factor returns (spoiler: they outperform the factor returns, but not by a statistically significant amount).
The Fama-French factors--skipping over some tedious technical details--rank stocks according to some criterion, then subtract the return of the bottom 30% from the return of the top 30%. SMB, "small minus big" subtracts the return of the 30% of stocks with the largest market caps from the return of the 30% of stocks with the smallest market caps. HML (the "value" factor or "high minus low") subtracts the return of the 30% of stocks with the lowest book value to price ratio from the 30% of stocks with the highest book value to price ratio). RMW ("robust minus weak") subtracts the return of the 30% of stocks with the lowest profitability ratios from the 30% of stocks with the highest profitability ratio and CMA ("conservative minus aggressive") subtracts the 30% of stocks with the most aggressive investment--reinvesting earnings and raising more capital--from the 30% of stocks with the most conservative investment--returning earnings to shareholders via dividends and buybacks.
The fifth factor is the return on the overall market minus the risk-free rate of interest. We don't have to subtract interest from the first four factor portfolios, because they are zero-investment portfolios, shorts equal longs.
It's important to remember factor exposures are determined statistically, they do not necessarily describe the company. A big company can generally do better when small companies are outperforming large ones, a profitable company can generally do better when unprofitable ones are outperforming profitable ones.
The SV50, as mentioned, has a 1.33 exposure to the market factor, and significant negative exposures to the other four factors. It does well when big stocks outperform small stocks, when growth stocks outperform value stocks, when unprofitable companies outperform profitable ones and when aggressively investing companies outperform conservative investors. None of that is surprising.
If there is a Silicon Valley effect, the the SV50 performance should differ from the factor portfolio constructed by combining the five Fama-French factor portfolios in the appropriate weights. It does outperform the factor portfolio, both since the election and since the inauguration, but by an amount that could plausibly be random chance.
The main story does not seem to be the SV50 versus non-Silicon-Valley stocks with similar characteristics (big, market-sensitive, expensive relative to book value, not very profitable, aggressive investments), but the crash in stocks of companies with low profitability--RMW factor. Since Trump's election, and especially since his inauguration, profitable companies have mostly held their own, while companies with low profitability have crashed. This is typically true before recessions when cash cows survive and even take advantage of low prices and slack resources, while money-losing companies that need new investment and growth to survive fall by the wayside.
It need not be an actual recession for robust companies to do better than weak ones, cash also helps in times of uncertainty, times of rapid change and liquidity squeezes. Nevertheless the marked preference of the markets for cash profits over future promises since Trump's election is not a good economic indicator. The market is battening down the hatches.
The SV50 has a beta of 1.33 to which index? Assume vs spx, but given the DJ and NDX are also in Nate's graph, think it's worth confirming.
Also will be interesting to see the rebalance frequency and handling of dividends Nate uses. These are not trivial parameters, especially re rebalancing non-(purely) cap-weighted indices. I understand this may not matter much outside of large moves... But we're in exactly the kind of environment where we should expect to see large moves.
The SV50 index's Beta is 1.33 on the "Value-weight return of all CRSP firms incorporated in the US and listed on the NYSE, AMEX, or NASDAQ that have a CRSP share code of 10 or 11 at the beginning of month t, good shares and price data at the beginning of t, and good return data." This is the highest-quality index used for most academic research, with significant advantages over the commercial indices. However the Betas on the three indices you cite range only from 1.31 to 1.34 so it doesn't matter much. It would matter more if the SV50 had smaller and less liquid stocks in it.
I estimated the Beta on 36 months of monthly data, ending October 31, 2024--just before the election. I used the weights Nate Silver choose for the SV50 stocks.
You're correct that details of index rebalancing and handling of corporate actions are important. I assumed full reinvestment of dividends the day they were received, and monthly rebalancing to the indicate weights, all without transaction costs. I doubt the answer would have been significantly different using other reasonable methods.
You should feel free to assert that the taxes were a terrible idea that will with 100% certainty cause pain in both the short term and the long term with no upside for anyone. I’m an economist and I work in tech. I might not be a macro guy, but I have no doubts when I assert that Shaun Maguire may have a physics PhD and he may be a talented founder and investor, but he is almost surely an idiot when it comes to economic policy. Just because you’re an expert in one field doesn’t mean you have any idea what’s going on in another field. Or maybe not. Maybe I should mansplane gravitons to him.
Maybe for a portion of the decline that had occurred through last Wednesday, but looking at the last 4 trading days I think it’s pretty clear that’s been all about “liberation day”.
Sure, but this is also a differential analysis against the larger market, and QQQ at least has more or less tracked the broader market since the Republican backed economic seppuku.
I see how it’s nice and simple but I also think inapt to attach this “Silicon Valley” label here. First, as you say some of these companies are definitely not in SV (Tesla, Palantir) and those in fact are somewhat culturally farther right/whatever than the others. Second, this litte club of billionaire CEOs has certain attitudes and groupthink, but I know a huge number of tech people in SV who don’t feel this way. So saying “Silicon Valley” is reflected by a small set of corporate leaders some of whom deliberately left Silicon Valley because they don’t feel at home in Silicon Valley is, I think, a stretch.
Once again having normal center-right to center-left politics would have given one the best model of reality. It was always extremely obvious that someone with the intellectual and character issues of Donald Trump would be a poor choice to steer the ship of state.
Normal people suffer from a problem in democracies: They are boring.
The reality is you the person you want as president is the most boring bureaucrat who just makes things works and is trying to simplify the life of everyone so he doesn't have to deal with it.
Best tax code I ever read was a proposal written by a special manager of the Tax Exempt and Government Entites section of the IRS (This was prior to Lois Lerner, who we both agreed was a idiot) for Senator Grassley, beautiful piece of work that was a political non starter, would have reduced the tax code to 100 pages and simplified filing, but also exposed all the levers so that the house could tweak them directly and get themselves in trouble. Also would have had the government sending you your taxes for confirmation, so most people could just rubber stamp it and send it back unless you had stock trades or ran a business.
*THAT* is who SHOULD have been president.
But those people, while beloved by the people under them, suffer from *not promoting themselves*, and therefore cannot be seen over the noise and the pomp raised by the professional entertainment and litigation classes that drown everyone out.
Youtubers should not be president. Entertainers should not be president. The pundit class should not be president. Lawyers really shouldn't be president.
But the people who should be president are unseen,
and often times, they wouldn't want it anyway.
I was talking to a guy recently who does training and consulting for business executives and he was describing his consulting business to me: In order to climb the ladder (corporate or political) you have to be a big self promoter. Quiet people don't get noticed and don't move up the ranks. This leads to a lot of narcissists in high level executive positions. The problem is that narcissists are inherently terrible at managing people, so they don't do well once they reach those management roles. The guy I was talking to provides training seminars to these executives to teach them what they don't know about interpersonal skills.
The same happens in politics. The people who are good at campaigning are typically not good at actually running things, and the people who would be good at running things aren't interested in self promotion.
haha-this is so true. I'm a consultant and dealing with these self-promoters is suffocating. I'm a logical, rational person and someone always willing to share the credit, so I get where you are coming from.
It's like in "The Wire" when Clay Davis and Clarence Royce are profiled. Do either make a difference? Actually do anything with their political power? Represent their consituents? Nope. Both are grifters, gladhandlers, charismatic politicans that can pull smoke and mirrors shows to get support of black leaders in Baltimore. They scratch backs and take credit for the work of others. Usually getting re-elected while doing so!
"Best tax code I ever read was a proposal written by a special manager of the Tax Exempt and Government Entites section of the IRS (This was prior to Lois Lerner, who we both agreed was a idiot) for Senator Grassley, beautiful piece of work that was a political non starter, would have reduced the tax code to 100 pages and simplified filing, but also exposed all the levers so that the house could tweak them directly and get themselves in trouble. Also would have had the government sending you your taxes for confirmation, so most people could just rubber stamp it and send it back unless you had stock trades or ran a business.
*THAT* is who SHOULD have been president."
Basically only have a real shot in a parliamentary system.
I can’t emphasise enough how much you guys (U.S.) desperately need a parliamentary system.
Biden would have been up there under the lights in question time day after day, unable to be hidden away. He may well have stepped down or gotten rolled by his colleagues in an internal party confidence vote.
Trump - if he’d ever have made it in the first place - would have had to be there as leader of the opposition, actually voting on every piece of legislation put to parliament. No hiding getting others to vote against stricter immigration.
Now with the market tanking it would be simple for his colleagues to just cut him down and send him to the backbench.
Parliamentary systems self-correct in a matter of days. Not four bloody years.
Yes: people are morons and just want to worship person on shiny screen.
Yeah I think this is the analysis spot on for Silicon Valley.
Like the SV bank run was very much a product of herd mentality.
And you articulated the contrarian mindset well. I think the incentive structure has made them prone to be overly contrarian like missing one investment is nbd for VC while hitting one investment can cover 100 or so failures - but not everything works like that irl.
In fact, one thing Silicon Valley is NOT known for is balanced or well rounded personality, so…
(Btw I saw this Shaun guy’s profile out of curiosity and his investment philosophy felt very Silicon Valley saying “I like high IQ entrepreneur” lol like I’m very nit picky here but I prob wouldn’t phrase it this way to describe his investment philosophy but hey there’s a reason I’m not a Silicon Valley entrepreneur)
Who could have guessed that betting on the lying, idiotic, buffoon who's only out for himself wouldn't pay off?
I can think of very few people who entered a relationship with Trump and came out of in better shape than they went in.
I would make an exception for people who were almost anonymous and then used the clout of being in his orbit to become right-wing grifters.
But established people with companies or high-level political positions? Being close to Trump is like poison. Sessions, Giuliani, Pence, Tillerson, John Kelly, and many others can tell you that. My guess is Elon Musk will soon be the cautionary tale to dwarf all others.
Trump will sacrifice you for a groat
It’s also just plain dumb to start a war you can’t win — ask Putin how that’s going.
Trump and his Silicon Valley backers seem to have forgotten that it’s not always the biggest or strongest country that wins. It’s the one that can endure the most pain and keep going. That’s the central lesson of Vietnam. To paraphrase Kissinger, the ultimate determinant of a war’s outcome is domestic public opinion.
And the truth is, the American public has very little appetite for the kind of economic pain a trade war inflicts — especially when they don’t see it as necessary or fair. By contrast, countries that feel attacked — like China or even Canada — tend to have a much higher pain threshold. They’ll dig in. We won’t.
The trouble with SV folks (I know a few) is that they have been so successful in one area of the world that they begin believing their own hype. Expertise in one area doesn't mean squat in another. My wife is very smart but can't tell you about finance; she's a physician and has forgotten more anatomical definitions than I'll ever know. My brain doesn't work like that: I'm a numbers guy. Dollars to donuts no SV tech bro could be a good therapist or nurse, even if they wanted to be. Nor do they have much EQ to manage others and get the best performance out of their team.
Also, much of their success is due to luck. They weren't born in a small village in East Africa or even in Podunksville, Idaho. They got into the right college, made the right connections: they knew how to navigate the system. They were born at a time when technological advances and United States investments had made the world ready to accept companies they built. The kid from small town Idaho, growing up in the 80s, may never have heard of Harvard or even really know anyone who went to a 4-year college. Same with poor urban kids. They never even get to the starting line. 90% of success is being in the right place at the right time.
Every successful business owner owes a lot to a highly functioning United States of America. A good transportation network means that goods and customers can get to your door. Education ensures a large middle class to buy your products. If you take the libertarian approach of no government investment in infrastructure or people, you get a society that is, by and large, a failure. Who maintains the roads? Every person is assigned 20 feet in front of their house? How are people educated? Just figure it out for themselves? That's a recipe for a return of the Dark Ages.
There is always a bigger picture explanation about why things are or how they could be. Only the less self-interested will fight for those, as they take a long time to pay off. For example, the Marshall Fund ensured that Europe could be rebuilt, wars would stop happening, and that other economies would grow so that we'd have more places to sell goods and services. All of these indirectly contritubed to the post WWII boom that suddenly everyone takes for granted and thinks we should burn down. Sure, maybe we could have been stingier on tariffs, but in the big picture, we grew the pond. Would you rather be in a small pond with 100 fish, catching 20% of them, or in a larger pond with 1000 fish, catching 10%? Of course the latter. But tariffs essentially guarnatee us the former: big fish in small pond.
I found myself agreeing with you quite a bit, including the fact that luck plays a big part in success. Then you started talking about starting lines and where they were born and that's complete nonsense. Have you been to the SV? There are huge number of immigrants here, including me. You think their lives were planned out based on where they were born? A lot of people saw an opportunity and took it. There's nothing stopping others from doing the same in the age of the internet.
Also, I understand that not everyone can be everything but I'm pretty sure that many who work in the valley can be a good therapist or a nurse if that's what they were passionate about.
You don't think SV has managers and leaders who get the best performance out of their team? If you want to make a point about the ecosystem and infrastructure that enables growth, that's fine but please stop talking nonsense about stuff that you have no clue about.
Well, I was more talking about the folks leading the charge here w/regards to, say nursing. Can you see Zuckerberg or Musk doing anything like that? No, because they are both seemingly incapable of experiencing empathy. Surely there are regular folks, but engineers in general tend to be really good at certain things, really bad at others (I'm an engineer BTW-my wife reminds me of it constantly). Also, I said nothing about "immigrants". Both of my sister in laws are immigrants: One has a PhD in physics from that school in Palo Alto that uses cardinal red as their primary color. The other, a Masters in Psychology from that state school across the bay in Berkeley.
It's not about being an immigrant whatsoever; both my sis-in-laws came from nominally upper class families in their countries, went to English speaking private schools as kids, and had resources and family connections. However, I'm guessing there aren't a lot of folks in the Valley from Sudan or Papua New Guinea for the same reasons. Likewise, a kid growing up in a rural American town in the 80s didn't have access to the internet and probably barely knew anyone who even went to college (that's me, BTW). Rural schools prepping kids for blue-collar lives do not serve college-bound students well. I was woefully unprepared for college, far behind other students, and again, with no internet and nodoby I knew who got a 4 year degree outside of teachers, you don't yet even know what you don't know.
Can you imagine Dukie and Bug from The Wire somehow breaking out of Edward Tilghman Middle School in West B'more, lucky to even graduate 4 years later, reading at an 8th grade level, and somehow ending up the Valley? I can't really. Dukie drops out to assist corner slinging because he fears he's not tough enough for HS (he'll get beat up) and to take care of the younger Bug because Bug's mom is a dope fiend. That's a tall mountain to ask someone to climb. Earn money for and raise your younger siblings, while getting prepared attending a school that has no resources and where very few even go to community college, leave everything you know because you've never been outside of a 15-block radius of where you grew up, and get to a top college and the right connections out of all that.
Parent success, whether money, connections, resources, knowledge, is by far the largest determination in the success of their children in the United States.
I'm an optimist. At least our Dark Ages would probably be more comfortable than literally living in the 7th century.
Did anybody else notice the story-behind-the-story on Musk here though?
We've all seen the visuals of Musk standing in the Oval alongside Trump, and all of the meetings he had with Trump at Mar a Lago. Musk, we're to assume from these visuals, was joined at the hip with Trump's policy teams, maybe even leading them. We're imagining countless all-day meetings in December of 2024 with Musk and Trump's people laying out.. THE PLAN.
Right? Wrong.
Musk is pushing back on policies Trump has ALREADY ENACTED. Musk, in other words, was never privy to any key planning meetings--if there even were any.
And also try to comprehend the level of self-delusion Musk has to operate under in order to appear surprised by anything that is happening right now.
Musk is a smart businessman who went to the Whitehouse with a plan? Nope: he's just an internet troll who jumped at a bunch of photo ops.
Thank you. Wonderful post.
Seems like a classic case of projecting hope. This crew was really unhappy with Biden and created a mental fantasy of what Trump would do. Same for a lot of people. Didn't help Harris didn't seem like a big enough change. I suppose if your thinking is 0% chance of improvement with option A and some chance of improvement with option B, this crowd goes with B. They just didn't think option B would be this much worse. For me the calculation was 'known level of sucking versus very possible vastly worse amount'. As a programming my thinking always goes to the worst possible thing that could happen:).
"Failure to properly assess risk" is the most common phrase I use in my security work for explaining how things went horribly, horribly wrong.
Replace the junior third of your coders with an AI trained on generic languages and with no access to your actual codebase? "Failure to properly assess risk."
Contract out a section of your API to a subcontractor in Thailand who you've never met because they were cheap and you were trying to make budget? "Failure to properly assess risk."
Purchased a company based on the hype and try and merge the products together through a API built by a couple of interns you then decided not to hire? "Failure to properly assess risk."
It just seems like the C levels never think that way. I've seen it over and over, they's rather the company go out of business than to admit they are on the wrong track, or one of their decisions isn't working out
I'm the type of person who gets called in when C levels fucked up enough that *The Board* wants answers.
The fact the board drove the C levels to that level of madness is inconsequential, when systems fail and they find themselves with lawsuits and/or their precious data gets locked behind ransomware, someone's heads are going to roll and Jerry in Accounting isn't the type of name the board will accept.
Also, first hand experience:
Most C-levels are in effect just want to be left alone to play video games between high pressure meetings. They therefore let the board roll all over them and make the mistake of rubber stamping every idea possible and telling the rest of the C levels 'The board has declared...' when the board was just spitballing ideas to make themselves feel important.
"access"
Assess? Can't figure out how "access" makes sense in that phrase...
Yeah, assess. I threw the response together between calls and was experimenting with AI transcription.
The whole 'you see what you expect' problem.
At least we dealt with the 8 trans women athletes … worth far more than the 5 trillion economic hit from the tariffs. Trump playing 5 dimensional chess … running circles around everyone.
If it’s not such a big deal, maybe Democrats shouldn’t have chosen this as the hill to die on.
They didn't.
https://www.politifact.com/article/2024/sep/30/kamala-harris-2024-campaign-promises-here-are-her/
I voted for her and I didn’t trust her one bit on the trans issue. She chose not to talk about it. That’s all. She never made an effort to explain her ridiculous positions in the 2020 primary.
There were plenty of political analysis write up both in 2020 and 2024 about Harris's positions based on the Democratic primary lanes available in 2020.
If you can't be bothered to do some research, you are just echoing Republican talking points that held Harris to a higher standard than Trump.
Women gotta be perfect, men just need to flap their gums.
And you need to make up your mind. Did Harris "choose to die" on the Trans issue, or did she never talk about it? The fact is that the noise about this was 100% from the right wing echo chamber.
What was her position on trans in 2024? If she didn’t have anything to say, you have to assume that she held on to the unpopular positions of the Biden administration and her prior public comments. You’re not the only person who follows politics and knows shit. I voted for Harris so stop saying idiotic nonsense like I’m holding her to a higher standard than Trump. I’m explaining to you why others were right not to accept her silence on the trans issue. It wasn’t a major factor for me although I disagree with the Democrats on this issue.
I gave you a link. Scroll down to "Civil rights".
You seem less informed than you believe you are.
What kind of trust were you trying to build with Harris on trans issues?
I don’t want a President to support the extreme positions of the trans movement. Just as I don’t want a President to support extreme pro-life positions. Harris was part of the Biden administration and had taken extreme positions on trans in 2020, so the onus was on her to explicitly walk back those positions. She decided to stay mum and tried to run out the clock, which didn’t work. There were more significant factors for her loss.
It seemed clear that Harris wasn’t going to do much (if anything) on trans issues as President. As compared to Trump, who is trying to ban trans people from the military and erase trans identity entirely. Doing nothing would be a much better course of action.
It’s huge. Way more than $5 trillion. Probably at least $25 trillion. Each case is worth $3 trillion, at least.
Here are the county by county facts:
Santa Clara : 68%% Harris, 28% Trump
San Mateo : 73% Harris, 23% Trump
San Francisco : 80% Harris, 15% Trump
Alameda : 75% Harris, 21% Trump
Why is it that when the D's lose Detroit it is about the workers, but Silicon Valley "supports" Trump because of some noisy Tech Bro executives who couldn't engineer themselves out of a paper bag?
Because everything in the media is about narratives. Nate buys into them and writes articles to cover the popular narratives of the time. But you’re right and it’s refreshing to see your post. Good luck, friend!
And of course Nate has a vested interest into hyping his River vs. Village synthetic distinction to drive up book sales.
A cynic would say that is why he made this a free post.
A realist would say that’s why he made it a free post. My honest view is Nate is deeply in the Village, as is Silicon Valley, if there ever were a village. The real River are the folks outside of the mainstream dominant political forces who want their electeds to actually get s*** done. Contrarians and libertarians think they are the River, but they’re just part of the same tired debates.
When things are in fact motivated by lining one's wallet, the line between cynicism and realism vanishes.
Is there a good glib name for the cult of "just do your damn job"?
Anyone who has had any meaningful relationship with someone with severe mental health challenges knows how exhausting and chaotic the impact on your own life is. This is Trump. The country needs Congress to reign in those powers now before the economic winter sets in.
If only you had a parliamentary system.
Boom - Trump thrown out in party room vote.
As would have happened to Biden when cognitive decline because obvious during Question Time.
I said on another comment something similar. Trump wouldn’t have lasted today in a parliamentary system. At the same time he could go on for ever but with the president his term ends in January 2029.
For some of them, getting Lina Khan out of the way might have been worth it but that's counterbalanced by a low IQ person hell bent on blowing up the global economy because he's too lazy to read an Econ 101 book.
Personally, I think the market is still pricing-in a fair amount of assumption that Trump will eventually back down from the worst of it. If they knew for a fact right now that he was going to see this trade war through (with his level of stubborn he very well might), I think things would have already fallen even further than they have.
I agree with your assessment.
I've lived and worked in Silicon Valley for decades. My whole career has been in tech companies. The people of "Silicon Valley" are overwhelmingly anti-Trump. We've all been disturbed by the sight of our CxOs turning into rabid right-wing ideologes. Once upon a time they cared about their employees and customers. Now they don't. It's been a disturbing shift to have had a front-row seat at. This shift isn't new. It's been going on for a couple of decades. Some of it is driven by their business model: companies whose income is driven by harvesting the souls of their customers (mostly the ad-driven businesses) have been dramatic. One of the reasons I like substack is that its business model isn't driven by advertising. The incentives for the business are different, unlike companies like Facebook and Twitter/X, which survive on soul-sucking.
Technically log-weighting is the same regardless of whether it is a natural logarithm, log-base 10, or any other logarithm.
https://www.khanacademy.org/math/algebra2/x2ec2f6f830c9fb89:logs/x2ec2f6f830c9fb89:change-of-base/a/logarithm-change-of-base-rule-intro
Seems to me like Nate's just being thorough about which log he's using is all.
For the folks who don't live and breathe log transformations, the good way to think about this is that you often take logs of things that are a) always positive but b) strongly rightly skewed, like incomes, where most people are pretty low and then you gots some billionaires.
One major reason you would do this is because once you've taken the logs, a change in the log value becomes roughly a percentage change. Things get weird with really big changes, but it's usually a pretty good approximation.
If Google's log market value increases by 1, you can think of it as Google's overall market value increased by about 1%. This way you can think about who's gaining or losing in an index with some normal and some really rich firms, without your numbers getting swamped by what's happening with just the big firms.
Nate is already feeling the looming large scale non-renewals from us and putting his genius on sale.
The Silicon Valley index described here has a Beta of 1.33, meaning you expect its excess return over the risk-free rate to be 33% greater than the market as a whole. On that basis it outperformed all three indices quoted since the election, and all but the Dow-Jones since inauguration.
But we can do a better job than the single-factor model. There are five Fama-French factors used as an industry-standard way to describe stock portfolio exposures. Typical stocks have r^2 of about 0.6 to the five factors--meaning the factors explain about 60% of the variance in the stock returns--but moderate-size, reasonably equal-weight portfolios like the SV50 will generally have r^2 above 0.9, unless there is some commonality in the stocks like all from the same industry or same country. So the way to tell if there is a significant Silicon Valley effect is to see if the SV50 returns deviate from its factor returns (spoiler: they outperform the factor returns, but not by a statistically significant amount).
The Fama-French factors--skipping over some tedious technical details--rank stocks according to some criterion, then subtract the return of the bottom 30% from the return of the top 30%. SMB, "small minus big" subtracts the return of the 30% of stocks with the largest market caps from the return of the 30% of stocks with the smallest market caps. HML (the "value" factor or "high minus low") subtracts the return of the 30% of stocks with the lowest book value to price ratio from the 30% of stocks with the highest book value to price ratio). RMW ("robust minus weak") subtracts the return of the 30% of stocks with the lowest profitability ratios from the 30% of stocks with the highest profitability ratio and CMA ("conservative minus aggressive") subtracts the 30% of stocks with the most aggressive investment--reinvesting earnings and raising more capital--from the 30% of stocks with the most conservative investment--returning earnings to shareholders via dividends and buybacks.
The fifth factor is the return on the overall market minus the risk-free rate of interest. We don't have to subtract interest from the first four factor portfolios, because they are zero-investment portfolios, shorts equal longs.
It's important to remember factor exposures are determined statistically, they do not necessarily describe the company. A big company can generally do better when small companies are outperforming large ones, a profitable company can generally do better when unprofitable ones are outperforming profitable ones.
The SV50, as mentioned, has a 1.33 exposure to the market factor, and significant negative exposures to the other four factors. It does well when big stocks outperform small stocks, when growth stocks outperform value stocks, when unprofitable companies outperform profitable ones and when aggressively investing companies outperform conservative investors. None of that is surprising.
If there is a Silicon Valley effect, the the SV50 performance should differ from the factor portfolio constructed by combining the five Fama-French factor portfolios in the appropriate weights. It does outperform the factor portfolio, both since the election and since the inauguration, but by an amount that could plausibly be random chance.
The main story does not seem to be the SV50 versus non-Silicon-Valley stocks with similar characteristics (big, market-sensitive, expensive relative to book value, not very profitable, aggressive investments), but the crash in stocks of companies with low profitability--RMW factor. Since Trump's election, and especially since his inauguration, profitable companies have mostly held their own, while companies with low profitability have crashed. This is typically true before recessions when cash cows survive and even take advantage of low prices and slack resources, while money-losing companies that need new investment and growth to survive fall by the wayside.
It need not be an actual recession for robust companies to do better than weak ones, cash also helps in times of uncertainty, times of rapid change and liquidity squeezes. Nevertheless the marked preference of the markets for cash profits over future promises since Trump's election is not a good economic indicator. The market is battening down the hatches.
The SV50 has a beta of 1.33 to which index? Assume vs spx, but given the DJ and NDX are also in Nate's graph, think it's worth confirming.
Also will be interesting to see the rebalance frequency and handling of dividends Nate uses. These are not trivial parameters, especially re rebalancing non-(purely) cap-weighted indices. I understand this may not matter much outside of large moves... But we're in exactly the kind of environment where we should expect to see large moves.
The SV50 index's Beta is 1.33 on the "Value-weight return of all CRSP firms incorporated in the US and listed on the NYSE, AMEX, or NASDAQ that have a CRSP share code of 10 or 11 at the beginning of month t, good shares and price data at the beginning of t, and good return data." This is the highest-quality index used for most academic research, with significant advantages over the commercial indices. However the Betas on the three indices you cite range only from 1.31 to 1.34 so it doesn't matter much. It would matter more if the SV50 had smaller and less liquid stocks in it.
I estimated the Beta on 36 months of monthly data, ending October 31, 2024--just before the election. I used the weights Nate Silver choose for the SV50 stocks.
You're correct that details of index rebalancing and handling of corporate actions are important. I assumed full reinvestment of dividends the day they were received, and monthly rebalancing to the indicate weights, all without transaction costs. I doubt the answer would have been significantly different using other reasonable methods.
You should feel free to assert that the taxes were a terrible idea that will with 100% certainty cause pain in both the short term and the long term with no upside for anyone. I’m an economist and I work in tech. I might not be a macro guy, but I have no doubts when I assert that Shaun Maguire may have a physics PhD and he may be a talented founder and investor, but he is almost surely an idiot when it comes to economic policy. Just because you’re an expert in one field doesn’t mean you have any idea what’s going on in another field. Or maybe not. Maybe I should mansplane gravitons to him.
I know everything revolves around Trump, but perhaps the Deepseek announcements and roll out had some impact.
Heaven forbid that some overvalued AI stocks fell because of an AI breakthrough.
Maybe for a portion of the decline that had occurred through last Wednesday, but looking at the last 4 trading days I think it’s pretty clear that’s been all about “liberation day”.
Sure, but this is also a differential analysis against the larger market, and QQQ at least has more or less tracked the broader market since the Republican backed economic seppuku.
I see how it’s nice and simple but I also think inapt to attach this “Silicon Valley” label here. First, as you say some of these companies are definitely not in SV (Tesla, Palantir) and those in fact are somewhat culturally farther right/whatever than the others. Second, this litte club of billionaire CEOs has certain attitudes and groupthink, but I know a huge number of tech people in SV who don’t feel this way. So saying “Silicon Valley” is reflected by a small set of corporate leaders some of whom deliberately left Silicon Valley because they don’t feel at home in Silicon Valley is, I think, a stretch.
Yeah - it seems a little stretched - perhaps a shallow attempt to fold in River vs Village hype.