Back in 193 AD, Didius Julianus bought the Roman Empire at Public Auction from the Praetorian Guard.
The Praetorians murdered him a few months later when someone made a better offer.
Meanwhile… The Vampyre Squid had a lucid moment yesterday. A No Sh*t Sherlock award is winging its way to Goldman for spotting the market is underestimating the economic effects of the Coronavirus and something of a speculative bubble in stocks has developed.
A reckoning is coming. My own hopeful guess is we’ll see equity downside limited by the anticipation of central bank support and accommodation to avoid a complete market meltdown, but at best flatline markets through what are going to be dismal Q1 company reporting and economic releases (probably thru Q2 as well). The effects on global supply and logistic chains are only now being felt. Stuff is going to go short in the stores in coming weeks.
The good news is Covid-19 might be a massive speedbump, but it will pass, and likely see a massive post-event rush to recovery – I reckon post-summer – which will be the moment to position for. Sell the anticipated crisis, and be prepared to buy as it passes.
The bad news is we are at a critical potential breakdown stage in the global political cycle. We have the US election – where Trump looks increasingly nailed on. But uncertainty is growing again in the UK, the EU is fracturing between Macron (keen to play to his domestic audience) and a learesque Merkel about to be led from the stage. And, if you believe the news stories out of China, unrest and dissatisfaction with Xi is mounting. Even Japan is wobbly.
Politics have a great bearing on markets, triggering uncertainty and double blinds. While the next few months could simply see a minor hiccup in terms of continued global growth and boom times for stocks – we could also see political uncertainty and electoral dissatisfaction tumble a stock market correction to something more serious.
Back on the political stage… A mere glance at the debate last night would beg the question.. where are the Praetorians? Not in the US. It doesn’t look like Trump can lose – even if he tries.
“Democrats take a huge risk is we just substitute one arrogant billionaire for another,”quoth Elizabeth Warren who came across at her best in last night’s Democrat Presidential candidate debate; angry and emotional. The only beneficiary was Bernie Sanders – the current front runner. As Mike Bloomberg, former Republican Major of New York, said: “I don’t think there is any chance of the senator beating President Trump.” He’s probably not wrong there.
Does it matter? The Americans will get who the American’s get.
But it does matter. Our descent into the depths of the political pit will continue. It does matter because collapsing faith in democracy will cost. Democracy, as they say, is absolutely the very worst form of government, except for any of the alternatives. We’ve tried them all… and none of them work.
I was taking tea with an old market friend yesterday and the pair of us ruminated on how things that once shocked us absolutely about Trump; his language and political stance, now cause us nothing more than momentary pauses. We have become inured to his ways. His political stench hardly troubles us anymore. We have seen political standards plummet. We have not seen any balancing improvement in the effectiveness of the political system in the US, or in the UK. What we are watching is distasteful. How long before we dismiss corruption, nepotism, and all the other ills that sink democracies as just “the way it is”.
It’s as bad here in this unhappy kingdom of the UK. All it takes is decent men to say nothing. After the ambush of Sajid Javid on a matter of principle, we are now left a presidential UK government that is too similar to Trump to allow for easy rest.
We’re hoping it will work – that the Johnson/Cummings axis will prioritise and focus on the issues to fix while the neutered cabinet dummies smile for the cameras. The doubts are clear – does Johnson have the focus and energy? The Kerns and Gallowglasses to the North are revolting. Or will Boris be leaguered in a Dunsinane of his own making? Will the party explode around him as other pretenders see their main chance..? Or is Boris’ name already pricked on Dominic’s list? Is that Javid’s ghost at the table? (Sorry… can’t resist a bit of Bardic showboating…)
Back to reality – It’s not just the tangibles like building a railway to the city at the centre of the Northern Powerhouse, er… Birmingham. It’s even more important they get the intangibles right: Sorting Education to produce the computer and engineering skill reservoirs the UK need to lead the global economy through the current revolution in AI, Robotics, Nano-Tech, 3D printing, and Health. Failure to sort education will doom the UK.
On the plus side – we saw no reason why the UK can’t go out and make it happen. Where I would disagree with Sajid Javid was on spending – the UK can print as much money as we need to refocus, redirect and rebuilt the economy. Stuff the OBR. Critics of government spending focus on two issues: that government spending is inevitably squandered on failed misspending, and that it crowds out more effective private investment.
To both I would say: Bollchocks.
The government has already created trillions of pounds, bailing out banks and pumping it into financial assets through QE and negative real interest rates. It’s been great for everyone’s pension – well would have been if “advisors” didn’t cream off all the upside. If there was ever a failure of government money to achieve an equitable results, look no further. The effect has been to create massive false value in financial assets, and putting wealth in the pockets of those owners of financial assets.
Surely it would be more efficient and more equitable if that money was actually spent on real things – like education and infrastructure, with the long-term reward of a better based and stronger economy? Such would have been the hope…
Only two things matter about any economy – the supply side: what companies are producing, and the demand side: what consumers are consuming. At the moment it is massively out of balance: the means of production were offered unlimited free money, and what did they do with it? Spent it on stock buybacks as the most attractive return. Demand has flatlined. It will continue to flatline till we invest in the demand side, till we invest in people rather than financial assets…
Pump money into the hands of consumers, through tax cuts or helicopter money, and spend more to educate them, and we stand a chance of getting back on track. Or keep the stock market happy with bread and circuses, while the state grows increasing rotten.
Let’s let the voters decide… oh, they lost interest…
Bill Blain is a well-known City of London commentator, and has 35 years’ market experience as an investment banker. He currently is Strategist at Shard Capital, a London-based boutique.
Republished from the Morning Porridge by permission.
