One of the enduring discourses of our time is the idea that something is terribly wrong, with political and cultural life, with the economy, and with nature itself. The message varies, but the main message is the same. The (liberal) world order—as we have come to know it since WW2, and latterly 1989—is coming to an end, a message usually delivered with a ‘good riddance’ attached at the end, for effect. The edifice, we are told, is imploding under the weight of the decadence and complacency of centrists, citizens of nowhere, and globalists, and other similarly-spirited foul. They have dominated for too long, and must now do one thing, and one thing only; repent, and pay, for their sins. The story looks different depending on the perspective from which it is being told, though I reckon it’s possible to identify two broad categories, which have, by now, become clichés in their own right. The left-wing critique tends to home in on two scourges of our time; inequality and climate change. These can be solved by expropriating the wealth of the haves, which will be distributed to the have-nots, and by halting damaging economic activity to protect the planet. The right-wing version is a nationalist protest, rallying in opposition to hitherto staples of global prosperity such as globalisation, international interdependence and multilateralism. The election of Trump and the Brexit referendum in the U.K. are most often trotted out as examples of this movement.
Read MoreIt is tough to look beyond the depressing daily death dispatches from around the world detailing the tally of the Covid-19 epidemic. Yet that is exactly what investors must to do, if they want to have a fighting chance to figure out what happens next. These data are undeniably terrible, but they are known quantities for markets, even in the U.S. and the U.K., where the numbers are rising too fast for their own good. They will continue to rise, for at least a few more weeks, at least. Meanwhile in the world as a whole, two immovable objects are now crashing into each other. We can’t return our economies to normal operation due to the risk of an uncontrollable public health crisis, but equally, we can’t maintain economic lockdowns indefinitely. The circuit-breaker in the form of a coordinated monetary and fiscal stimulus program to the tune of nearly 20% of global GDP is a stop-gap solution at best. This is because that is arguably the level of GDP that developed economies are set to lose through H1 alone. Contrary to popular belief, you can’t just freeze the economy, and then re-start at zero six months later after having printed trillions of dollars. Anyone who makes claims to this effect are, in my view, getting a little too excited about the second-order effects of our present misery, which is the economic shutdown itself, and the associated open invitation to unleash the MMT experiment. Don’t get me wrong, it is the right thing to do, but as I said, it is a second-order effect.
Read MoreThis essay is full of contradictions and loose ends, so I might as well start with one in the title. This cycle is not over yet, and I am not sure that I have the definitive answer for when it will end. It is, however, well advanced with some themes and narratives. I am writing this in an attempt to make sense of and to explain, a world, which to my despair is increasingly devoid of reason. As a finance geek, I can’t get anywhere without first establishing the state of play in the economy and markets. The most salient feature since the financial crisis has been the unprecedented activism of monetary policy. In 2006, Alan Blinder described central banking in the 21st century. It is a brilliant paper but in dire need of an update given actions taken by policymakers since 2008. Central bankers were first called into action to prevent a collapse. The destruction in markets after Lehman’s failure showed that timidity or firmness in the face of moral hazard risk was impossible. Interbank markets were seizing up, banks were running out of liquidity, and the chaos quickly was spreading to the real economy. Decisive action was needed to avoid the situation spiralling out of control. Central banks had to take their role as lenders of last resort seriously.
Read MoreInvestors have found it difficult to resist the temptation to become armchair generals in response to the recent flurry of geopolitical volatility. I have some sympathy for that. Political experts told us that Mr. Trump would mark the beginning of a new U.S. isolationism, and even speculated about the emergence of a new Monroe doctrine. The president's "America First" discourse, the statement that NATO is obsolete, and the rapprochement to Russia were all pivots watched ominously by other world leaders, especially in continental Europe.
This story, however, increasingly feels like ancient history.
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